At my local pharmacy, there’s a sign at the counter that reads: “Since when did poor planning on your part become an emergency on my part?”
While at times that philosophy has affected me more often than it should, it sort of really hit home when I read various reports on the federal bailout for the nation’s housing market.
Although the bi-partisan package was relatively small by the traditional Capitol Hill yardstick, it holds the promise of morphing into something far larger and very taxpayer unfriendly.
The bill, which President Bush appears eager to sign, would deliver roughly $100 million toward foreclosure prevention counseling and about $4 billion in the form of block grants to both state and local governments earmarked toward the purchase of foreclosed properties.
As I understand it, the bill would also extend the ability for states and municipalities to raise billions in tax-exempt bonds to help refinance troubled mortgages in their respective jurisdictions.
I have more than a few problems with this.
Speaking from personal experience, my spouse has spent nearly a quarter-century underwriting mortgages. That pedigree includes two separate tours of duty in the subprime arena.
She has recounted stories of credit histories that defy rational analysis, such as couples making in the neighborhood of $50,000 per year with a litany of charge-offs and credit card debt approaching $100,000. One applicant had not one, but a trio of auto repossessions. Those are precisely the same people who later complained they were victims of predatory lending, despite being given a mortgage that was basically destined to fail.
Under saner circumstances, they would not have, but the Community Reinvestment Act, which was enacted in 1977, has to shoulder a lot of blame in the subprime mess as it held a virtual gun to lenders’ heads.
Trust me, no amount of counseling or education will help people that possess not an ounce of fiscal discipline.
Next, knowing my suspicion about the government (both federal and local) to run anything efficiently, granting them the power to borrow and subsequently purchase foreclosed properties and issue more affordable mortgages has DISASTER written all over it. Want to venture a guess who will pick up the tab when those who defaulted on their first mortgages predictably repeat the experience?
But wait, it gets better.
According to reports, House Financial Services Committee Chairman Barney Frank, D-Mass., wants Uncle Sam to guarantee up to $300 million for troubled mortgages. Under Frank’s plan, the lenders (read banks) would absorb any losses on the loans by slicing the amount due.
Not to be outdone, Sen. Chris Dodd, D-Conn., wants judges to tailor the mortgages of bankrupt owners. Now whether that would be done by cutting the principal or the interest rate, has yet to be determined.
At best, Dodd and Frank’s plan would result in soaring interest rates, while at worst, it would give the nation’s taxpayers the pleasure of cleaning up what will certainly be a slew of future defaults.
Apparently it has become an emergency on our part.
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