Why the Subprime Bailout?
I was catching up on the local news today and noticed that there is some grumbling about Deval Patrick’s foreclosure program. This got me thinking about the so-called “crisis” in the housing market where those people who took advantage of subprime loans and ARMs are discovering that they vastly overextended themselves and can no longer afford their mortgage after the rate adjusts. This is happening everywhere because the housing market was pretty hot a few years back, and Massachusetts (which has had an overpriced housing market for years before the housing boom) was right at the head of the pack. Now that the housing market has cooled and the realities of ARMs are hitting home for those who should never have bought a house in the first place, suddenly it’s a crisis. What’s more amazing to me is that both Federal and State governments are trying to find ways to bailout homeowners who can’t meet their financial responsibilities. Whatever happened to people taking responsibility for their own actions?
Patrick’s plan calls for credit counseling (a little bit late for that, wouldn’t you say?), financial assistance and forcing lenders to wait to foreclose on the home until the homeowner has had a chance to sell it. The last part is especially onerous because the plan allows homeowners to sell it short (at a loss or for less than the amount of the loan) and call it even. The lenders would even have to pony up money to assist with moving costs if they foreclose on a house!
But lenders have balked at the part of the administration’s plan that calls for them to let customers sell their homes at the lower prices of the current real estate market and pay off a reduced mortgage balance. In such cases - known as short sales - lenders would take a loss on the loan. The administration also asked subprime lenders to pay $5,000 for each house they foreclose on. The money would pay the expenses of moving the occupants to a rental property.
I understand that those lenders who offered these subprime loans were almost certainly preying upon people with low incomes who dreamed of owning a home, but they couldn’t have made the loan without a signature. How is it that we’ve gotten to a point where when a subset of people make poor decisions, it’s suddenly a government responsibility to bail them out? The very simple fact of the matter is that people who signed for these loans without the ability to make the payments down the road made bad decisions. The fact that these loans had adjustable rates should have been factored into their decision before they signed the loan. If their credit was for shit, they had no savings and they could just barely swing the mortgage payments pre-adjustment then they should never have signed the loan. It’s really that simple. People made bad decisions and now they should live with the consequences.
And don’t give me this “American Dream” nonsense. Sure, it’s a dream to own a home but since when were dreams guaranteed to come true? The dream is there to inspire people to work hard, save their pennies and eventually buy something within their means. The housing market is such that, assuming you’re not wealthy, one should make a smaller purchase first and, after building some equity, upgrade to a larger house that is still within your means. That’s the crucial bit: within your means. Hell, I make good money, for which I work very hard, but I still rent. Why? Because I’m paying down debt, working on saving money and am not married (no dual-income, which is almost a requirement for home ownership in this state, given the absurd prices). I should have done this a decade ago, but eventually I will buy a condo (assuming the allure of renting doesn’t hold). Now you’re telling me that my government is going to bail out people who couldn’t make the same leap of logic? With my tax dollars (and everyone else’s)? That’s bullshit.
This state is a tough place to live if you’re dreaming of home ownership. Land is hard to come by and prices for homes have always been higher here than in most of the country. That’s the reality of living in this state. If you can’t afford a home here and your situation (work, disability, etc.) doesn’t look like it will allow you to afford a home here in the future, then that’s the reality you have to accept. If you can, move. If you can’t, rent. No one handed you a signed document at birth stating that you were owed a home. If you were suckered in by the allure of home ownership and subprime loans but find you can no longer afford the payments, you have no one to blame but yourself. I’m sorry it happened, but you need to stand up in the face of adversity and take responsibility, not expect that the state or the feds are going to come running in with their deep pockets (of everyone’s tax dollars) and make it all better. Learn from your mistake. Rent again and start rebuilding. If you can’t afford to rent a place big enough to comfortably house you and your children, then you made some poor family planning decisions as well. Teach your children not to make the same mistakes you made. That kind of logic applies to all states.
While it is true that having a large group of people with destroyed credit and large debts to pay off is bad for local economies, it’s equally as bad, if not worse, to force private businesses to shoulder the burden for their customers’ bad decisions. Many of the subprime lenders who made these loans have gone out of business or filed for bankruptcy protection because none of their customers are paying their mortgages and the properties they’ve foreclosed aren’t selling because of the slump in the housing market. Large companies like Ameriquest have bitten the dust due to their subprime loan practices (and other practices). So isn’t attempting to force lenders to eat their loans going to force more of the smaller companies out of business and cause the larger, more diversified companies to lose profits? Isn’t that more dangerous to the economy (loss of jobs, tax income, etc.)?
I’m not saying that the many of the subprime lenders weren’t scumbags trying make a buck on the dreams of people in tough situations, and I don’t doubt that many of these companies had predatory practices. I’m not saying they were right to behave the way they did. But, once again, without the signature on the loan forms they wouldn’t be in business. And don’t forget that these kinds of high-interest loans have their place: people who are a credit risk can often only get loans by agreeing to higher interest rates to offset the potential loss the lender might face. If the person seeking the loan can’t afford the rate, or the adjustment of the rate down the road, they shouldn’t sign the loan. It’s ridiculous to expect that the government is going to ride to the rescue of people who can’t afford their home loans and it shouldn’t be allowed. If the government had wanted some kind of role then they should have been providing some kind of oversight over loan practices or credit counseling services before there was a problem. It’s too late now and this attempt to play white knight is nothing but irresponsible pandering, the egregious wasting of tax dollars and an assault on private business in this country.
This is yet another symptom in a much larger problem better known as “The Nanny State“. One of my other homes was a perfect example of this mentaility, but Massachusetts is right up there with them. This Nanny State mentality crosses party lines and is exhibited by Democrats and Republicans equally (which is just more evidence that the parties are almost identical these days). The Nanny State is the mentality which will destroy the foundations of this country and turn it into a pale imitation of Great Britain, which is the ultimate irony considering the roots of our nation.
But hey, if were going to play this game then I want in too. I’ve got some credit card debt I racked up buying too many toys. Will Deval take some of his income and pay off my credit card?
