Should the Government Bail Out People in Foreclosure?
July 28th, 2007 | 
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As I wrote in my article, Can the Government Solve the Foreclosure Problem, the state and federal governments are considering using taxpayer money to bail out people in foreclosure. Is this a good or bad idea?
At first blush, it appears awfully unfair, in that the government would take your money and give it to someone who made an irresponsible financial decision and would thus profit from it. On the other hand, one could argue that the government’s lack of regulation on loans, in part, led to the problem.
From a purely capitalist, free-market position, I’d say, “Absolutely not – let the market correct itself and allow economic darwinism take its course”. From a sympathetic standpoint, what’s $300 million in the scheme of things, since most of it would go to HUD counseling agencies to help poor people refi and keep their homes?
Despite the animosity from people who object to paying for this “robin hood” program, it would help everyone, since less foreclosures helps keep your neighborhood home values up. However, the harsh reality is that $300 million wouldn’t change anything, and like most government programs, it would be nothing more than lip service and bureaucracy.
Nobody wants to see low income families on the street, but it is a bad precedent for the government to have too many programs to bail consumers out of bad financial decisions. True, some of the lenders are to blame, but they are already being punished in their pocketbooks. Many lenders who originated and sold these loans are now having to buy them back from the investors they sold them to.
As a final note, most states do not have extensive regulation of the mortgage broker profession. I am not much for excessive government ANYTHING, but having a sufficient fund to reimburse the victims of the worst predatory lending would be a good idea. Real estate brokers, attorneys, and other professionals pay into a fund managed by the state for the protection of clients that are scammed, and so should mortgage brokers. In my own state of Colorado, mortgage brokers have to carry a small bond, which is almost a joke. California, on the other hand, requires a mortgage broker to first be licensed as a real estate broker, which I think is a good idea.
Click here to view my YouTube Video on the Suprime Meltdown
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But Bill, why get the government involved in rescue schemes when there are perfectly good lawyers capable of suing Ameriquest and the rest? If they win a cash settlement, there may even be enough left to give some to those who were lured by the predatory brokers. Isn’t that the best way to redistribute (at least 60-66% of) the wealth?
The idea is not redistribution of wealth or punishing anyone, but rather doing something constructive to stop the gushing river of foreclosures that bring the values down for everyone. The $300m figure is a drop in the bucket for this task.
The problem is it is not just low income people into foreclosure. It is middle and some upper income families. It isn’t just sub-prime it appears to be across the board.
I believe there already is help for people in foreclosure it is called Bankruptcy.
Granted there are a lot of people who suffered a death in their family or a change of income. Or health problems that prevent them from working. Loss of job, lower salary.. Or whatever.
The bottom line is this.. When rates were down to record levels people bought, bought, bought, and bought. People went way beyond their means in debt. Not only did many home buyers buy 3 times the home they needed, they also maxed out all home equity to pay off credit cards and buy other things. Eventually when people maxed out their cards for the 2nd, 3rd, and 4th time, it got to a point where rates were rising, gas prices took a jump, and grocery prices jumped. Now the person is in serious debt with no way out and no equity to show for it.
These introductory interest only loans, and introductory low rates didn’t help either. When people saw the lower payment they saw more buying power. Instead of working on ways to pay off debt with the lower payment., The extra cash was used to buy a new car, truck, SUV, Now these lower payment introductory offers, and introductory ARMS expired and they are looking at a much higher payment. And they are still making payments on that Car, truck or SUV.
People NEED to learn to budget, manage money, and how not to abuse credit. A quick government fix does not force a person to learn how to manage money.
WELL THERE ARE A FEW OF US OUT HERE THAT HAVE SPECIAL EVENTS THAT HAPPENED LIKE I HAD A OFFICE MANAGER TO EMBEZZLE 1.5 MILLION DOLLARS AND SHE HAD DONE THIS BEFORE TO A LAW FIRM THAT DID NOT PROSECUTE HER SO SHE WENT TO HER NEXT VICTIM ME!!! SO I PUT WHAT MONEY I HAD LEFT BACK INTO THE BUSINESS AND THE ECONOMY TANKS. SO THE BANKRUPCTY COURTS DIDN’T HELP THEY JUST SOLD MY BUSINESS THRU A 363 SALE AND I LOST EVERYTHING AND LOSING MY HOUSE AS WELL. THE LADY THAT DID THIS TO ME GOT 18MONTHS SENTANCE OUT OF 28 YEARS SO WHERE IS THE HELP FOR PEOPLE LIKE MYSELF I HAVE TURNED EVERY PAGE. ONE MORE THING I STARTED THIS BUSINESS IN 1986 WITH 3 THOUSAND DOLLARS AND WORKED NIGHT AND DAY TO GET WHERE I WAS AND EVEN MY ACCOUNTANTS DIDNT SEE IT THIS PERSON WAS A PROFESSIONAL AND HAD A INSIDE PERSON AT THE BANK DOING THE LANDURING ETC…
I also forgot to mention some of these people who are in foreclosure have jobs and make 6 figure household incomes. That is just sad.
Don’t get me wrong, I don’t favor this type of thing unless it would work, which it won’t. But, certainly, there’s more neigborhood fallout in the poorest neighborhoods from the subprime foreclosures, and pumping money into local HUD offices is a gesture at best.
But property values hitting rock bottom should only be a short term correction. I can’t see the housing market in a slump for more than a few years.
Unless you are planning to sell, or refinance. This shouldn’t be too much of a problem for most home owners.
We have people who bought several Condo Properties as a short term investment to make a quick buck. They financed at 100 to 125% equity to make improvements on an interest only loan. Suddenly the $400,000 property is now valued at $280,000. The only option is to default because the 3 to 7 year interest only introductory offer is about to end on the financing.
Do these people need a Government Bail out?
DEFINITELY NOT!
Here’s an interesting idea. If the government is buying up all the bad debt or mortgage backed securities, doesn’t it make sense that the government should own the underlying property as well? That way, if the “owner” sells the property, the government and tax payers would eventually get reimbursed for the bailout.
Man, if I knew that I could take out a ridiculous loan, and then get off scott free, I would have done the same thing!
i think the government bailouts are ridiculous uncle Sam picking and choosing who gets help and who can suffer a little bit longer. either help everybody that needs it or no one at all. multimillion dollar companies get more money while average Joe who has nothing has to payout double the next year in taxes to help a car company that hell never even get a car from. that’s why everybody should follow me and head up to Canada i found this really great place up there called Toronto Suites it is definitely worth checking out .