The “Bailout Boss,” Neel Kashkari, spoke today to provide details on how the taxpayers’ infamous $700 billion will be used. Namely, Kashkari provided five key arenas in which the Treasury Department will expend this money:
- Purchase of failed mortgage-backed securities
- Purchase of mortgages
- Purchase of equity in banks
- Assistance to delinquent borrowers to prevent foreclosures
- Insurance of mortgage-backed securities and mortgages
These ideas may sound good on paper, or in a speech, as the case may be. But let’s examine a bit further, especially on the purchase of mortgages and assistance to delinquent borrowers.
During the second presidential debate, Senator John McCain made reference to buying up mortgages and manipulating their terms in order to prevent foreclosures. It appears Kashkari and the Treasury are on board with this plan.
However, a couple of large caveats need to be made for such provisions.
Firstly, the principal on any mortgage should not be adjusted downwards to reflect the true current property value of a home. If the federal government is going to bail out borrowers who can no longer afford their mortgages for purchasing homes that have dropped in value, then I (as someone who can pay my mortgage) expect the same treatment. My property values have lowered in the last 5 years due to the enormous amount of homes that have been on the market in my neighborhood, all of which have struggled to move. Just because I can pay my mortgage each month doesn’t mean I don’t deserve equal treatment as those stupid enough to buy homes that they couldn’t afford through the use of adjustable-rate mortgages.
What’s good for the goose is good for the gander. And as a proud gander, I expect my principal to be adjusted just as much as any low-income earner.
Now that’s just not feasible, right?
So instead of adjusting the principal, and punishing the responsible folks of our great nation, what needs to be done is an adjustment on the interest rates. Bring the interest rates down on the houses purchased by those who bought over their heads. Most importantly, though, let the losses be realized by the lending institutions who were “mavericky” enough to approve loans to risky borrowers, all in the name of a quick buck.
Let those who caused the housing bubble to inflate and then subsequently pop be the ones to take responsibility. The banks, the underwriters, the faulty credit score reporters, those that practiced in mortgage fraud – these should be the parties who have to take the losses as a result of decreased interest rates on homes on the brink of foreclosure. Not responsible Americans, not the federal government, and not taxpayers as a whole.
