Government subprime bailout
Posted on September 2nd, 2007 by bile Categories and Tags: Uncategorized, American Enterprise Institute, Bush, debt, federal government, Federal Housing Administration, Federal Reserve, Federal Reserve System, nanny state, Peter Wallison, politics, subsidies, tax law, taxes, your moneySome homeowners with risky “subprime” adjustable-rate mortgages will be able to refinance before they lose their home to foreclosure, with the help of steps President Bush will announce Friday, senior administration officials said Thursday night.
An estimated 80,000 homeowners with bruised credit and subprime ARMs they can no longer afford will be able to refinance loans, which the Federal Housing Administration (FHA) would insure.
The move marks a historic expansion of the role of the FHA, a Depression-era agency that has traditionally served low- and moderate-income families and first-time buyers, but not delinquent borrowers. Nearly 16% of subprime borrowers are behind on their ARMs, and an estimated 2 million subprime ARMs totaling about $600 billion will reset to higher rates through the end of next year.
The senior officials avoided using the word “bailout,” but the plan is sure to incite critics.
“If you’re going to help someone to refinance, you’re going to bail out the person who financed him in the first place,” Peter Wallison of the American Enterprise Institute said Thursday night. “This will only cause the problem to arise again.”
Wallison said the lenders who provided the financing in many of these cases likely knew that the borrowers couldn’t meet the financial obligations of the loan.
“If we’re going to allow (lenders) to be refinanced out, what we’re doing is saving them from their own greed. … It might be good politics, but it’s very bad policy.”
In another bold step, Bush will propose a temporary change in tax law. It would let homeowners avoid taxes on forgiven debt if a lender agrees to alter the terms of a loan.
All investments, all actions contain risk. How do you justify the federal government and Federal Reserve bailing out both those who make the risky investments? If I invested in SCO years ago would the government back me up because of my poor choices? Of course they won’t. But it seems that if some large mortgage companies and investment firms make bad investments the government will. And it only makes things worse. The large private firms will only take larger risks if they have less true risk because they know the government will bail them out when the shit hits the fan as it did a few weeks ago. The public primarily pays for these bail outs through our taxes and we also pay through the drop in the market in our 401K’s and other investments. The investors should be completely responsible for their investments. If they screw up and the market goes apeshit then it goes apeshit. That’s just how it goes.
2 Responses to “Government subprime bailout”
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September 2nd, 2007 at 11:37 pm
How do you feel about the FHA in general?
September 2nd, 2007 at 11:58 pm
It’s swell that it’s supposed to be self funded and all… (though the HUD has asked for $150 million for it recently) but it’s unnecessary and adds to government bloat. Home ownership is great, it’s however not a right. If your too high a risk for a bank to offer you a rate you can handle than so be it. If the FHA was truly budget neutral then it could be a private business ran by people who think backing up those who are high risk is a good thing to do.