Responsibility key in taking out loans
September 21, 2007
Should the federal government step in and bail out homeowners who are in danger of losing their houses because of the subprime mortgage problem?
The Bush administration and members of Congress are looking at ways to help those who may face foreclosure in the next two years, but this raises a few questions.
First, should the government bail out only subprime mortgage borrowers or all those with floating rate mortgages who are struggling to make their payments? Why should it only be subprime mortgage borrowers that get a government cash infusion? What about those folks who saved for a down payment, but still find themselves struggling to make the mortgage? Are they not equally or perhaps more worthy of assistance? These people stand to lose their down payment as well as their house while a lot of the subprime borrowers will just lose the house. And how many people speculated with subprime loans by buying up several houses in order to make a quick buck?
Don’t get me wrong, I am not opposed to making a quick buck. It is common in the stock market. But bailing out subprime borrowers by rewarding the fact that they bought more home that they could afford might be sending a dangerous message.
Second, how would the government identify the estimated 2 million homeowners who may be in danger of losing their homes? Considering what happened with Hurricane Katrina, it sounds like an invitation for fraud. Next in line, here is your check, thank you.
Third, how would the government do this? There is not going to be an easy way to provide a fiscal bailout without bailing out those investors that bought these risky mortgage pools. Many investors bought these mortgages to provide high returns. Bailing out these investors would also set a dangerous precedent. If you are bailing, why not bail out other high-risk adventures? It is only fair, you know.
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Now if those mortgages had remained with the lender, there would be ways to renegotiate those subprime loans and the borrower could have a reprieve.
Also, consider the option of fining those who participate in this predatory lending and form a fund that will assist those who are struggling to save their primary dwelling. No second homes, no investment property.
Another proposal out there is for the government to pass legislation freezing the rates on subprime loans for five years and then limit the increases to .25 percent points for the next five years. That would cost the government nothing, hence the taxpayer nothing. This would also punish those lenders financially for making these risky loans.
However all this mess shakes out, it does take two to tango. It was not just the lenders that are at fault here, but the borrowers as well. Many people not only bought a home, but new furniture, appliances and a car to go with it never thinking about how they were going to pay for all this in the future. Should we bail out the furniture companies and the auto makers as well? I could go on and on ….
• Carol Perry, of Carol Perry and Associates, has been a resident of Northern Nevada since 1983.
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