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Homeowners struggling to pay their bills must find the federal government's bailout of troubled Wall Street firms confusing.After all, government officials have repeatedly said they would not help victims of the subprime mortgage crisis, reasoning that they should not get rewarded for making bad decisions.
It's Economics 101 that people who take bad risks will continue to do so if there are no consequences to their actions. But the $85 billion rescue of American International Group Inc. (NYSE: AIG), the bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the possible rescue of Washington Mutual Inc. (NYSE: WM) and the shotgun wedding of Merrill Lynch & Co. (NYSE: MER) to Bank of America (NYSE: BAC) brings all of these cherished notions of free markets into question.
Why is the government helping companies who sold mortgages to people who they knew couldn't afford them and repackaged the loans into securities that were unloaded on unsuspecting investors -- but doing little for individual homeowners?
Yes, I realize that an avalanche of bankruptices by financial services and insurance firms would have been a disaster. The impact of the record number of foreclosures is no less consequential. According to RealtyTrac, foreclosure activity rose 12% in August from July and 27% from a year ago. Believe it or not, that represents a reduction from previous months. The company attributes the improvement to laws passed by states giving homeowners in foreclosure more time to resolve their finacial problems and from increased efforts by banks to help distressed borrowers stay in their homes. Last year, President Bush announced a rescue plan including permitting the Federal Housing Administration to guarantee loans for delinquent borrowers.
More needs to be done.
Foreclosed properties are a blight that hurts everyone. They depress real estate prices further because banks are looking to unload them quickly. Cash-strapped homeowners also are falling behind in their tax bills, hurting state and local governments. Vacant foreclosed homes can become magnets for neighborhood crime.
The Center for Responsible Lending is calling for a moratorium on foreclosures for at least nine months, which seems like a good idea especially in hard-hit states such as California. It rightly points out the irony of the recent Wall Street bailouts.
As the non-profit stated in a recent press release, "If the lenders and investors who created the subprime fiasco deserve help, then surely so do the millions of families who face foreclosure because of the 'unfair' and 'deceptive. home loans -- those are Fed Chairman Bernanke's words, not ours -- that Wall Street was so eager to buy."
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Reader Comments (Page 2 of 2)
11-29-2008 @ 3:26PM
Jennifer said...
As if I didn't have enough to say....I want to address the expected rebuttles to come. No, my mortgage lender will not move payments, adjust or modify anything, and I must correct a previous statement I made. Our mortgage is a 3/1 ARM not 5/1. I need to clarify that we are not looking for a handout or a "bailout" or a "short sell" where the government eats tens of thousands of dollars of "settlement" for our mortgage. I just felt complelled to stand up for those of us who are doing everything we can to salvage our American dream. I, myself, laid every tile in my home when it was built, I added a 4th bedroom by myself, (except electrical work, eeek!) I have the right to live in my home as long as I can pay the mortgage. If a 3 bedroom apartment were less than our mortgage, even if we did a "short sell" and lost our home, we would possibly consider it. We checked into renting our home out and renting a crappy mobile home for our family for much less than our mortgage but it wouldn't rent for enough to cover the mortgage and renters may cost us more in repairs than it's worth, even if they didn't stiff us for rent. I have a tiny stock portfolio from a 401K converted to an IRA, unfortunately, the $2K I once had is now only $300.00. I made flyers to cut neighbors' laws but they are just as strapped as we are. I put an ad in the local papers and online for a female roommate. What else can we do other than keep treading water until we can TRY to refinance next October when our mortgage rate is due to adjust and our pre-payment penalty expires? Please tell me what we HAVEN'T considered as a solution. I am not blaming the mortgage company so much or the wealthy and greedy, but don't be disgusted with me and call people in my situation ignorant. This county needs severe changes and new ideas, obviously, the decisions made by our lovely government haven't worked for the middle class, poverty sticken, or the elite 5% (or whatever the % is) of people who make 95% of the income in this country. You people are so quick to judge and condemn us "ignorant" fools who make bad choices, why don't you come up with some intelligent advice and solutions since you are so established due to your vast knowledge of what the economy and housing market will do next. I would love to see some of you "pay it forward". You are lucky enough to not struggle to have more than enough. Do this for Christmas.....Go to the home of a lower to middle class family where both parents work hard, ask them who they pay their mortgage to and write a check to their morgage company and say Merry Christmas, or Happy Haunnakka (don't know how to spell that) I've been blessed, I want to bless you. Or take several names off the "Angel Tree" at the mall and "adopt" a family for the Holidays. Maybe the feeling you get from helping others with bless you and you won't be so quick to condemn. When I was making great money as a dancer, I always "paid it forward" by helping other single moms or struggling families and I wasn't wealthy. Maybe that's why I'll never be wealthy, I care too much about others.