During the State of the Union, President Obama called for a new era of responsibility, and declared that there will be “no bailouts,” yet he offered a supposed solution for the ongoing mortgage crisis that rewards irresponsibility by promising even more bailouts for “underwater” homeowners.

The president blamed the nation’s economic crisis on the busted housing bubble, yet he fails to place any responsibility on federal housing policies that rewarded banks for making loans to people who couldn’t afford them. Despite his rhetoric, the mortgage industry is no font of unregulated capitalism. Every step of the loan-making process is driven by government rules.

Obama's new "financial crimes unit” will make it even harder to correct the housing problem given that lenders will be more frightened that a misstep will lead to legal problems. The president said, “This new unit will … help turn the page on an era of recklessness that hurt so many Americans.” The bailed-out banks deserve much blame, but consumers shouldn’t be exempt from responsibility for the overpriced homes they bought and their use of now-gone equity as a piggy bank.

Obama promised homeowners a refinancing bailout because “responsible homeowners shouldn't have to sit and wait for the housing market to hit bottom to get some relief.” But letting the market hit the bottom is what needs to happen – and there would be far less waiting without policies that delay the inevitable.

When I heard about the president’s plan, I was finishing renovations on a foreclosed house I bought in a Central Valley city in California where the housing bust was severe. Even though mortgages are lower than rents and a full-time job at a fast-food restaurant provides enough income to buy a nice home, people don’t have jobs. Lending standards are so tight that they can’t get mortgages, as the federally driven pendulum has swung back far in the other direction.

The market won’t rebound until the government stops rewarding the very irresponsibility the president railed against.

Source: http://www.nytimes.com/roomfordebate/2012/01/25/is-refinancing-the-best-way-to-fix-the-housing-market/mortgage-crisis-stop-rewarding-irresponsible-consumers