In his State of the Union address last month, President Obama outlined "a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates."
Despite stern opposition from Congressional Republicans, the President is still pushing for the plan, which calls for the Federal Housing Administration to take on the risks of the new mortgages created by the mass refinancing.
The President says the plan will be paid for by "a small fee on the largest financial institutions [and] give banks that were rescued by taxpayers a chance to repay a deficit of trust."
But former White House budget director David Stockman said that's just a smokescreen for the real agenda.
"This is ultimately at the end of the day a bailout for JP Morgan and Wells Fargo," and other big underwriters of second mortgages and home equity lines, Stockman says. "Those [second liens] are in great jeopardy because of homeowners way under water on primary mortgages and are likely to default or throw in the keys at some point down the road."
Furthermore, the plan would create "FHA-sponsored subprime slime" that refinances homes at up to 140% loan to value, "something even Angelo Mozilo never attempted," Stockman observes. "The White House proposed financing scheme is a lie because they will drastically underestimate the losses due to the amount of jingle mail the FHA will get from underwater borrowers who will default over the next 30 years."
Stockman isn't necessarily opposed to the government imposing fees on big banks but says it should be used for deficit reduction, not another scheme to artificially prop up the housing market.
Obama's plan is "the worst kind of crony socialism," according to Stockman, who says it's time to end "government meddling" in the housing market, not to mention taxpayer-funded bailouts of the 'too big to fail' banks.