AlyssaKatz.com

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…So Obama press secretary Robert Gibbs advised CNBC ranter Rick Santelli, who on the air last week attempted to stir a faux-populist rebellion by charging that the administration’s plan to help homeowners was a giveaway to reckless, imprudent and excessively aspirational mortgage borrowers. Okay, I don’t expect Santelli to ponder policy before he does an impersonation of Peter Finch in Network. But I’ve been struck by how inadequately people I talk to, or hear in the media, still understand an essential fact of the plan. (By “plan” I mean the part subsidizing loan modifications saving people from foreclosure, since even Santelli wouldn’t be fool enough to criticize the other part, which gives borrowers who took out low-risk mortgages using full documentation but had the misfortune to live in areas with sharp price drops the opportunity to refinance at lower rates.)

I’m going to resort to cheap boldface: The homeowners who get loan modifications are not getting a financial giveaway. Over the life of their loans, they will owe MORE than they did before the bailout. The government program to lower their monthly payments spends some bucks to keep them afloat over the next few years until the economy and home prices stabilize, making other options (like selling the home) possible. But because lenders will be adding all the unpaid principal and interest to the end of the loan the homeowner still pays the bill in the end. For most people, their loan balances will increase. Download, hit print, and read the Treasury Department’s own case studies for examples.

Saturday, February 21st, 2009 | Tags: faux populism, financial stability, loan modifications, Rick Santelli
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