Smart Borrower Blog

The New Legislation – Help Or Bailout?

Jul 27th, 2008 @ 4:38 PM by Alden Smith

The Senate took a weekend session to fruition this week and passed the new housing bill, which Bush has agreed to sign.  Although I see this as a sign that at least the government is recognizing the pickle homeowners are in, I have to ask myself who benefits the most from this legislation.  Supposedly, the government is willing to help 400,000 households pull out of the financial crisis they are in.  Well and good, but the last time I noticed, it was more like 1.5 million that were needy.   Current estimates tell us that 5.5 million borrowers will default on loans by the end of 2009.  Half of these will lose their homes.  Maybe my arithmetic is a bit rusty, but I am thinking that 5.5 million is a bit of a stretch from 400,000.  And that won’t take into consideration the qualifications that must be met for help, nor assures us that lending institutions will cooperate. 

Both Freddie and Fannie are looking more like they are going to need bolstering up, with the Congressional Budget Office assuring us that here is probably a better than 50% chance that this won’t happen.  However, if the Fed is looking into the huge pay packages of top execs in both these institutions, and with the pair holding upwards of $5 trillion in mortgage paper, I have to think we are not hearing all that is going on with them.  Remember, the two, although backed by the government, is still privately owned, and heavily invested in by investors and speculators.  These people don’t have to open their books to the Fed, and we have no real idea of who is holding what.  And it is for certain we will never have a clue.  The risk to taxpayers is a matter of public record – the profits made by others is outside the public view.

We, as taxpayers, bailed out the S&L’s in the late 80’s.  We are now looking at tremendous debt to bail out irresponsible homeowners and failing private institutions.  Billions will go to communities to buy up foreclosed properties to avoid “blight.”  Sen. Christopher Bond, R-Mo., has pretty much said it all.  He says that “This bill is fraught with too much risk and too little protection to the taxpayer,”  stating further that it would allow lenders to “dump their worst subprime mortgages” on the Federal Housing Administration.  Read that as you will, but the bottom line is more bad news for the people holding the bag – the American taxpayer. 

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