Wednesday, December 12, 2007

The Mortgage Bailout: Rewarding Irresponsibility

I normally don't get too political in my writings, but I'm really upset by our President's proposed plan to bail out strapped homeowners facing foreclosure.

I thought that the Republican Party was suppose to be the party that believed in corporate and personal decision making as a means for fostering economic growth. I thought they favored policies that limited government regulation and intrusion into our personal lives and advocated minimal interference in the economy. I guess I was wrong. The head of our country (and the Republican party) seems to think that bailing out mortgage holders who borrowed more than they could afford, and gambled with risky Adjustable Rate Mortgages is the right thing to do to keep our economy from plummeting into a full scale recession. I think it's the wrong thing to do on both a moral and economic level; and it's probably too late even if it weren't wrong.

I am far from a genius when it comes to economic matters. I squeaked through math in high school and college barely making a passing grade. But I do have some common sense. With the help of a calculator…I can figure out the basics; like how much money I have coming in, and how much goes out, and what if anything is left over. Then, I live within those means. Do I want a bigger house? Sure. A cool new car? You bet! But I'm a single mom with a mortgage, one kid in college and the second going next year. There are things I can't afford, and that's life.

But there are others who don't play by the rules of common sense. Whether it's a sense of entitlement, greed or ignorance, they took advantage of the cheap credit that was available and they bought more house than they could afford. And probably, more car, furniture, clothes and other luxury items to go along with it. They find themselves drowning in debt, and their homes are being foreclosed.

Jon Markman, a writer for MSN Money says "The Bush administration intends to fix the subprime credit mess by keeping people who weren't creditworthy in debt longer and rendering signed contracts meaningless."

That totally sums it up.

CNN reported a story about a woman who bought a home in Florida. Instead of going for an adjustable rate mortgage with low initial rates, she opted for the security of a 30-year fixed at 7.10 percent in December, 2005. But many delinquent subprime borrowers who went for low teaser rates that shot up to unaffordable levels are now paying lower rates than she is as part of a new round of foreclosure bailout packages. For example, one borrower had a riskier adjustable rate mortgage with a rate of just under 7 percent that was going to reset in December to 10.5 percent. But last month, as part of a new bailout plan from Countrywide Financial, the lender gave him a rate reduction to 5 percent on his loan, saving him hundreds of dollars a month. Hardly fair for the woman who now feels cheated because she paid more up front, and will pay more over the life of the loan than he. Hard to blame her.

Bailing out people who have gotten themselves into this kind of debt is only enabling them and putting a band-aid on a more severe problem. Extending these loan terms is like giving an alcoholic a drink to ease their symptoms, when the reasons behind the behavior and personal responsibility for solving the problem so it doesn't happen again are ignored. And, what does it teach our younger generation about personal responsibility? Buy what you want, but don't pay for it?

I know that bad things can happen to even the most responsible person. Job loss, illness, an accident or even a death or divorce, can affect a family's income quickly. For those unique and extreme circumstances, I fully support the government programs that offer assistance to protect a family from losing their home. But I don't believe most of the people involved in this mortgage crisis fall into this category.

Despite the Fed's attempts to stave off a recession with interest cuts, it looks like our nation is heading into a recession, and maybe it's just what we need to teach people to live within their means.

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