The cost of the $700 billion bailout bill, criticized as unconstitutional by legal scholars, is rising, as Congressional leaders demand new handouts for deadbeats (and left-wing groups) in exchange for passing it (ignoring cheaper solutions to the financial crisis). Now, in addition to welfare and affirmative action, there will be foreclosure “relief” at taxpayer expense. The government is going to use its role “as the biggest mortgage holder in town” to give special breaks to borrowers who are behind on their mortgage payments, rather than to stem the financial crisis.
“Democratic demands that Congress be given greater authority over the bailout and that the government be required to help homeowners renegotiate their mortgages so they have lower monthly payments already have been accepted in principle. Under the bailout bill, which will let the government buy huge amounts of toxic mortgage-related assets, ‘we’re now the biggest mortgage holder in town, and we can do serious foreclosure avoidance,’ [liberal Congressman Barney] Frank said.’” (Moreover, irresponsible borrowers will be able to seek not only a reduction in their monthly mortgage payment, but also a cut in the amount they owe on their mortgage, getting part of it written off at taxpayer expense).
But the whole point of a mortgage is that lenders can foreclose and recover the value of the home if the borrower doesn’t pay. Government limits on foreclosure will further undermine confidence in financial markets. And many of the borrowers who are behind on their mortgages now lived it up several years ago, taking out mortgages with low-introductory payments during the housing bubble (allowing them to finance lavish consumption, like buying fancy cars), in exchange for higher payments later on that they should have known they wouldn’t be able to afford. They’re going to be bailed out by taxpayers, including people with fixed-rate mortgages who paid more in mortgage payments than they did during the housing bubble, but have lower mortgage payments now (because their payments haven’t risen). There’s nothing fair about that. Most of the people who are defaulting now aren’t victims — in fact, some of them lied about their income to get mortgages on large houses that were bigger than they could afford in the long run (while people who bought homes using fixed-rate mortgages and a large downpayment ended up living in small houses that they could actually afford).
Senator Hillary Clinton wants the taxpayers, and risk-averse people who took out fixed-rate mortgages, to subsidize people who took out adjustable-rate mortgages. In today’s Wall Street Journal, she says that people with adjustable rate mortgages should be able to keep their introductory low interest rate forever, even though no one would ever have offered them a permanent rate that low, and even though the introductory adjustable rate is lower than the rate they would have received on a fixed-rate mortgage. (When I bought a home, I had the option of either a fixed 5-percent mortgage, or an adjustable-rate mortgage with an introductory rate of 1 percent that probably would have risen to 7 percent or more by now. I took the fixed 5 percent rate).
Clinton also advocates a temporary moratorium on foreclosures, so that deadbeats can keep living in the big houses they can’t afford. That’s a windfall for risk-takers and gamblers, at the expense of people who are thrifty and prudent.