The United States of Subsidized Housing

February 27, 2008

The housing and mortgage crisis is quickly becoming an all-out bailout funded by responsible taxpayers.

I’m scratching my head trying to figure out what exactly our government is trying to do regarding the mortgage crisis. Today’s Wall Street Journal had an article ($) detailing Barney Frank’s (or is it Barney Fife?) plan:

Barney Frank (D., Mass.), the chairman of the House Financial Services Committee, is floating an initiative that aims to refinance as many as one million “distressed” homeowners out of high-cost loans using government assistance. The proposal, which could cost as much as $15 billion over five years, would likely involve the federal government buying loans and then helping move borrowers into mortgages backed by the Federal Housing Administration. Certain loans, such as investment properties and those on vacation homes, wouldn’t qualify.

I’ve said it before: unless we give the houses to these people, there’s no way they will be able to afford the payments. Lots of homes (though not all) were purchased using interest-only mortgages. The interest portion of the payment was LESS than the portion that went towards the principal. So, even if you refinanced into a mortgage with a 0% interest rate (which isn’t going to happen), these folks’ payments would still go up.

Though I disagree with Barney Frank’s plan, it’s this part of the article that bothers me the most [emphasis mine]:

The program might be less costly if the housing market improves or if the borrowers with government-backed loans are able to handle their new mortgages. Mr. Frank is also working on a provision that could limit the government’s potential exposure, but in an interview he defended a federal role in stabilizing the housing market. “It was the lack of government intervention that got us here,” he said.

Sure, that’s the answer: MORE government regulation! Give me a break!

9 responses to The United States of Subsidized Housing

  1. Has anybody proposed that financial education in high school is the answer to avoid this problem in the future and just let the people who bought houses they can’t afford trip and fall?

  2. Traciatim,

    No because that’s not what is going to get the voters to the polls. Nobody cares about the future. They’re more concerned with the here and now.

  3. i don’t believe that “intervention” and “regulation” are the same in this case.

    imo, the “intervention” that would’ve helped the most is if, a few years ago, the government spelled out clearly that they would not provide help if things started to turn sour for large companies in the lending market. seems to me that the biggest companies did the stupidest things because they assumed that the government wouldn’t let them go under, because of the economic implications and consequences if they did.

  4. Traciatim Says:
    February 27th, 2008 at 12:46 pm
    Has anybody proposed that financial education in high school is the answer to avoid this problem in the future and just let the people who bought houses they can’t afford trip and fall? —-

    THat is such a great point. Instead of teaching kids some macro economic supply and chain graph. How about teaching them how to balance their check book, spend wisely, explain the risks of debt, etc etc.

    Its amazing that this information has to be self taught!!! I know I learned by reading and learning on my own. Ask my wife to balance a check book or what a interest only ARM is you will get a blank stare. As most people…

  5. The point about education is spot on. There are a number of organizations that are working towards geeting financial literacy into the classroom. The fact that we as a society do not do this is criminal. Just today, I bought a financial literacy curriculum so that I can “home school” my 7 and 3 year old in personal finance. This should not be necessary, but if you want something done right, do it yourself.

    I am sick and tired of bailing out those irresponsible people in our society. Let me be clear, I am all for helping hos disadvantge via government programs as such, but I draw the line at helping those too stupid to help themselves. I cannot fathom buying something so expensive as a house, and not understanding the terms of my loan. I research buying a 1500 tv, let alone a $250k house. if you did not understand your loan, it’s you fault. Step up and do something about it, don’t ask me to bail you out.

    Personal responsibility also needs to be taught because it is evident that not enough people have it.

  6. Homeowners are a favored and protected class in this country.

  7. More education is good because I’m sure it would help at least a few people, but let’s be honest: The people falling “victim” to subprime mortgage loans are not the type to pay attention in school and/or understand what they’re taught. Proof? They already don’t understand basic math concepts like percentages and compounding.

  8. Jon,

    I agree but I also think that lots of people were banking on property values continuing on their upward rampage when they took out these loans. They gambled and they lost. I don’t think education would have helped in this situation.

  9. Why I am responsible, as a taxpayer, for some ones decision based upon greed, stupidity or at best naivety?