Big Dogs Weblog

Clinton and Bush in Joint Mortgage Plan

by Big Dog on Dec 6, 2007 at 18:49 Political

There are about 1.8 million people who received foreclosure notices this year on homes they had no business buying. The people were attracted to buy homes that were too much for their budgets by lenders who offered no down payment loans and adjustable rate mortgages. The promise of future wealth from escalating home values was too much for some who bought into the lower rates never taking the time to consider what would happen if the market went south. The sub prime market is now rearing its ugly head as many more Americans will face foreclosure in the coming years.

But wait, George Bush and Hillary Clinton are riding to the rescue. The President put forth a plan today which was in the works when Clinton touted the very same ideas. Despite her claim that her plan is better and helps people in ways that the Bush plan does not, the fact is they are nearly identical and they are potential disasters for the economy. The government has no business getting involved in the affairs of private companies and the people with whom they have entered contracts. This is a matter that can and should be worked out between the parties in the contracts.

Bush and Clinton claim that no taxpayer money is involved but the plan offers financial counseling to people so the money to pay for that has to come from somewhere. Also, some people will be able to move into loans secured by the FHA which means that if they default, the taxpayer will get socked. This is an ill advised plan that is designed to help people who made poor decisions and there are no guarantees that this will not hurt the taxpayer. For instance, once the loan rates are frozen, one option under the plan, what procedures are in place to ensure that homeowners do not borrow against the equity in the house? People with financial problems (and anyone who opts into this has financial problems) are easily influenced to take out home equity loans to pay the bills. Those loans are secured with the home which, in some cases, will be secured with taxpayer money.

Sometimes people make bad choices and the unfortunate fact of life is that they must suffer the consequences of those choices. When people spend more than they can afford buying a car or racking up credit card debt there is no expectation that the federal government will swoop in to bail them out. Why then, do people expect the federal government to bail out those who got in over their heads when they purchased a house? There are solutions that can involve the government.

First, they can make some kind of uniform rules governing the sale of homes. I have bought two homes in my lifetime and the amount of paper and the number of times that one has to sign is staggering. I have read every item that I was signing and asked for clarification for anything I did not understand. I also understand that, as the song says, what goes up must come down. People should have some understanding that the cost of homes go up and down and that great markets do not last forever. They should also understand that an adjustable rate can adjust in both directions. The government can help by forcing mortgage companies to make the language on forms clearer and easier to understand.

Additionally, there should be some disclosure about how adjustable rates work and how increases can affect payments. Since home sales that require no down payment cause havoc and gain little equity, people should not be allowed to purchase homes under these terms unless credit history and financial statements show that the purchaser is able to absorb increases in interest rates.

These items will help people with future home purchases but what about those who are already in trouble? Mortgage companies should work this out without government intervention. The most reasonable thing would be for the companies to offer a fixed rate refinance at a reasonable cost. The cost could be included in the new loan so those with little cash on hand could refinance and have a fixed monthly rate upon which to plan.

In some cases, people are going to have to shop around and try to get a fixed rate mortgage and it might cost them money. This is the cost of making a bad business deal. If all else fails they could negotiate with the mortgage company for relief until they can sell the home and get something that they can afford.

Regardless of which path people take it should not be one lined with assistance from the government. There are too many problems associated with government intervention and the unintended consequences could be worse for the economy, the homeowners, and the mortgage companies.

If all else fails and people lose their homes, I understand the government has a bunch of trailers in New Orleans that are not being used. Also, Hillary’s involvement gives her opponents more proof that she is not very different from George Bush after all.

Source:
WBAL

Tags: george bush, Hillary Clinton, mortgage, poor choices, sub prime