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The Obama foreclosure plan has caused a lot of division among the people of this country.   Of, course, there is the giant split between conservatives and liberals.  But, the bigger divide, and the more interesting one, is the one it causes between the needs of renters (prospective buyers) and homeowners

I have a “hunch” that nearly all the people in favor of the mortgage support plan are homeowners and lenders.  Why?  From what I understand, Obama’s plan is to use taxpayer dollars to prop home prices.  The logic is that this action will keep banks and people from having to sell their homes for huge losses.  Or, in other words, the government is stacking the deck against homebuyers, hoping that they will quickly, rush out to buy an overpriced home, thereby “saving” us all. 

Unfortunately, Obama’s plan is likely to fail because it does nothing to correct the overbuilding (supply) and lack of demand that cause prices to drop.   It also does little to help the banks, who have discovered that they can only sell property for what they can get, not what they are owed.   In other words, if the current owner can’t afford their house at anything close what they originally paid, chances are slim that anyone else can either. 

The “housing” bailout hinges on keeping prices high or keeping people in homes they can not afford.   It does nothing to erase the over supply of homes, increase demand, nor does it put more qualified buyer’s in the market.   The bottom line is that the foreclosure plan pits renter against homeowner,  in the hope of keeping lenders in business.  

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While the US housing crash is certainly not breaking news, the likely crash in commercial real estate values may be. 

Now bankrupt, Lehman Brothers, attempted to dump their commercial portfolio’s, without success.  Insurer AIG, who will face insolvency in the absence of a bailout, also has a huge portfolio of commercial property that they will be forced to liquidate.   Bank of America, Wachovia, Citibank, Merrill Lynch and other financial behemoth’s are also likely to dump billions of dollars of commercial real estate on the market, as they race to head off bankruptcy. 

This progression in the collapse our financial systems spells much more misery for the US home owner.  The human casualties will continue to rise, as thousands of “potential” home buyer’s will be eliminated from the housing market due to job loss.  In addition, we are likely to see an increase in housing inventory, as displaced workers can no longer afford the payments on their over priced homes.

It seems the real beneficiaries of the tax payer bailouts, which doubled the US national debt, are the banks of China and Japan who hold billions of dollars in US government sponsored enterprise (GSE) debt.

So, what does this mean for you and me?   In a nut shell, falling real estate values, more unemployment, more homelessness and more suffering. 

Why is it happening?  The policies of the Bush administration, who found it unnecessary to regulated or supervise the greedy bankers, most of whom are its friends and contributors. 

Is there an upside for residential homeowners?  The short upside is that the Fed will likely be forced to lower interest rates this week, which will help those who need to refinance or those who trying to qualify for a loan.

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