Bailout Nation: Who Should We Save?
May 14th, 2008
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On April 29, 2008, Roy A. Bernardi, the acting secretary for Housing and Urban Development, spoke at the Federal Home Loan Banks Annual Conference. In his presentation, Mr. Bernardi addressed the federal government’s role in the current foreclosure crisis, and how the FHA should play a central role in order for there to be any lasting solutions.
Mr. Bernardi commented on certain efforts by the FHA, like FHASecure, aimed at preventing the foreclosure crisis currently plaguing our nation. Mr. Bernardi went on to state how the FHASecure program has helped save hundreds of thousands of troubled Americans from foreclosure.
Mr. Bernardi also spoke about how the FHASecure program was going to be expanded to “serve borrowers in subprime adjustable rate mortgages who are in default as the result of some extenuating financial circumstances which have temporarily hindered their ability to make mortgage payments. These borrowers would still have sufficient income to make payments on the new FHA mortgage, but are stretched or unable to meet the terms of their existing mortgage after the reset rate increase. The refinance will put them in a more sound financial position.”
Mr. Bernardi called this a “good idea,” citing the avoidance of the detriment caused by foreclosures. Mr. Bernardi estimates that the FHASecure will help approximately 500,000 homeowners in total by the end of this year.
My reaction – wonderful (said with a most sarcastic tone and disappointed tone.) Every time I hear the admiration of these “bailout” type plans I lose my mind. I ask myself whether the government really believes providing handouts is the answer.
Why is it that we never hear proposed solutions that address the root of the problem? Why doesn’t the government ask itself how it can prevent such an occurrence in the future? Why doesn’t the government seek ways to deter the mortgage industry from intentionally placing borrowers in bad loans? It is irresponsible lending, coupled with mortgage misconduct, compounded with the occasional less-than-honest borrower that has led to this problem. Now, we are implementing measures that seemingly encourage the foregoing!? It just does not make sense to me.
In very simple terms, what really needs to happen is the following:
First, the government needs to implement preventative measures to assure that the instant mortgage crisis does not happen again. Borrowers need to know what exactly it is that they are agreeing to by signing their loan documents. Period. As I have said many times before, the average borrower has no idea how to interpret the stack of loan documents that he is asked to sign.
Second, there needs to be severe penalties for those mortgage brokers and lenders who actively duped borrowers all in the name of earning fees, and increasing their personal bottom lines. These penalties could range from criminal penalties to treble damages to extending liability, personally, to those persons in charge of overseeing their respective mortgage brokerage or loan operations. If the penalties for such conduct were more serious, you can bet that mortgage and loan professionals would do a little better at policing themselves.
In closing, the government’s current efforts at remediating the mortgage crisis are not appropriate. Although they may “sound good” to the layperson, these efforts are short-sighted and only “band-aid” the problem. It promotes irresponsibility and does nothing to deter malfeasance. Further, bailing out distressed borrowers with taxpayer dollars is not fair. I would rather see our tax dollars go to something more productive, like hiring sufficient staff to police mortgage misconduct -– not funding and encouraging it.
Beyond that, we should look to those culpable mortgage and loan professionals to foot the bill for a problem they caused. And, if the borrower knowingly put himself into such a predicament, then they need face the consequences.
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