The Bailout – What It Means

Dec 7th, 2007 @ 11:06 AM by Alden Smith

December 6th, Treasury Secretary Henry Paulson unveiled the new bailout program that is reported to help homeowners that face resets on their mortgages and are looking at possible foreclosure.  Seen as a benevolent act by the Bush administration, the outline makes me feel like I am not so sure that it is of much help.

Who It Serves

The plan is set up to target people that are facing a reset on the sub prime mortgages, and will not be able to afford to refinance.  That is well and good.  But the plan does not give any guarantee whatsoever, because the plan is not an order to lenders, but merely a suggestion.  Lenders will not be required to do anything.  And I think that the government is not reading the folks on Wall Street very well, because greed drives the market, not benevolence.

The Biggest Winners

People who will benefit from this the most are those who have kept up with their payments, yet cannot afford them after the reset comes into play.  There is currently an estimated 600,000 of these homeowners that would be the target population.  These homeowners might be able to have their low rates frozen for five years.

The Biggest Losers

Here is where the real numbers come into play.  Homeowners that have already faced the reset to higher rates probably won’t get relief.  This amounts to 600,000 people who can’t keep up with their payments even at the low introductory rates.  If you’re behind, forget any relief.

The Final Analysis

Some 2 million Americans are probably going to lose their homes in the next 2 years.  Many economists feel this will drive us into recession.  The government cannot rely on Wall Street or the mortgage lenders for a lot of help. Edward Leamer, director of the UCLA Anderson forecast, feels the plan will do the opposite of what it is supposed to do by artificially propping up home values.  There is no promise here to suffering Americans.  It is more pie in the sky from my point of view.  I am thinking a lot of other Americans feel this way, also.