Mortgage bailout keeps getting worse

During yesterday’s debate, John McCain announced he plans on using $300 billion to buy mortgages for individual homeowners. The government would pay the mortgage and then refinance the property at it’s new value to the homeowner.

This is a BAD plan on so many levels, I’ll just highlight a few

  • No Accountability The only reason ANY kind of bailout of the mortgage crisis is acceptable at all is because it is impacting everyone. Failures of Lehman Brothers, AIG, Wachovia, Washington Mutual, etc.. impact anyone who is doing business with them. When these companies fail, everyone is hurt. Individual homeowners, for the most part, are directly responsible for their own mortgage crisis. Why should all taxpayers help a homeowner out just because they bought more home than they could afford, or took a HELOC out so they could take an Alaskan cruise. These people gambled, and they should have to pay.
  • Fraud If a plan like this goes into effect, everyone who owns a home will start looking for ways to get in on it. It’s going to be much easier to minimize fraud when dealing with a handful of large corporations than it is when dealing with 10s of 1000s of homeowners.
  • It won’t work This crisis isn’t as much about the foreclosure rate as it is about the property values. Right now, if a loan goes into default, the lender stands to loose thousands of dollars. That means the only way something like this will work is if the government bails out everyone that owes more on their home than it appraises for. Buying up these mortgages and refinancing individuals homes isn’t magically going to increase property values. It’s hard to know without a lot of implementation details, but it’s quite possible that it will supress prices even more.
  • It’s not necessary Some references are made to the depression when the government purchased some mortgages. In the 1930s, much of this country was agricultrual, and many farmers lost their homes due to the dust bowl, which coincided with the depression. In those days, many people’s homes (like the farms) were also their place of business, and many of these homes had been in the family for decades. This is not currently the case. Most of the people who are involved in this mortgage crisis have only lived in their home for a few years. They never had any equity in their home and didn’t put any money down, so the only real consequence here is that they are going to have to move from a home they are paying a mortgage on to a home they are paying rent on.

This idea is just another example of politicians playing fast and loose with taxpayer dollars – and just so you don’t just pin this on McCain, Obama has proposed a similar idea. The bottom line is this money our country just DOESN”T HAVE. This is going to become part of the national debt, impact the value of the dollar and ultimately result in increased taxes on us, our children and maybe even our grandchildren. Our government should do what they can to make sure we don’t end up in a worldwide depression, but the must be responsible and feel good election promises like this are a bad idea.