Hey, how about I squat in a house belonging to a subprime owner who took a mortgage they can't afford to pay? At least it wouldn't be "bailing out the richest"!

Radical economic solutions through theft! Viva!

Yes. It would make things worse.

Lenders lend under the belief that the law will back them in their efforts to collect what they are due. If you take that from lenders, the credit market will not just dry up. It will cease to exist.

What a stupid idea.

Congressperson Kaptur shows the tolal irresponsibility for which that body is becoming known. Shame on her.

Caelan,

You ask "Would it be fair to those homeowners who have good credit and pay their mortgage every month?" and then answer " Maybe not..."

I don't think there is any "maybe" to it. Yes it would be unfair. No question about it.

You may think that in the end it is still worth it, but I think that any approach that is unfair to those who have been prudent and responsible has a fatal flaw that will come back to bite us all.

Seriously, would it make our situation any worse?

Yes it would, not only in financial terms but it would also set a terrible precedent. Seriously. Your FICO score is crap and you were allowed to purchase a home beyond your means. You signed a contract agreeing to the terms. When the housing market tanks, that ARM kicks in or you realize that the home is more than you can afford you expect the taxpayer to subsidize your mortgage? One bad bailout deserves another? Where does it end?

Mr. MacTavish, your heart is in the right place but I can't say the same for your head.

Can someone provide a copy of a police report from anywhere in the country that shows where a sub-prime borrower was forced at gunpoint/knifepoint to sign their name to a mortgage.

Thank you.

"If you are unable to refinance out of your mortgage, under current conditions, then the federal government should forgive your loan."

Just so I understand - If someone took out a loan to get into a house that they couldn't afford, then we should bail thme out.

THen we make the people who scrimped and saved and stayed in house they could afford pay more taxes to make up for it.

Or are you suggesting we just keep printing money?

"Lenders lend under the belief that the law will back them in their efforts to collect what they are due. If you take that from lenders, the credit market will not just dry up. It will cease to exist."

The loans being discussed were sold, cuts into slices, packaged, repackaged, resold, etc., etc. Bankruptcy courts are seeing a lot of these foreclosure cases get successfully challenged because the lender cannot document who actually holds the note on the mortgage. If lenders are so stupid or so irresponsible (my bet is on a combination of the two) that they can't keep track of who has the note on the loan they made (nobody held a gun to their heads either when the mortgage security bundler man came around with a wheelbarrow full of money), then, IMO, they are SOL.

"You ask "Would it be fair to those homeowners who have good credit and pay their mortgage every month?" and then answer " Maybe not...""

Hey, it's not fair to them that their property depreciates when their neighborhoods are dotted with foreclosures or vacant homes that aren't selling. It's not fair when the credit crunch causes them to be laid off and start worrying about defaulting on their own mortgages. Things are tough all over. And for all they know their mortgages were bundled along with junk mortgages and their lenders don't know where their paper is either, something they don't find out until they have a question about their own loan.

of course, you want to have a sub-prime mortgage forgiveness program! It's your MOM, for crying out loud. I'm sure a lot of people in your situation would feel the same way.

But that doesn't mean it's the right thing to do.

The only way a subprime mortgage forgiveness program is effective is if the loan is forgiven and the "homeowner" is removed from the premises, to pay rent at a rate they can afford.

Otherwise, dammit, I'm buying that mansion in the hills with a no-doc 1yr ARM. Forgive me.

Kevin: got any examples?

Yes, it would be unfair to poor and lower middle class renters. Those of us who looked at the outrageous housing prices, our incomes, and our expenses and decided that it was not the time to buy. I am nearly ready to buy. However, if all the default buyers were suddenly bailed out, then the supply would decrease sending the prices high. This would price me out. Even so, would it be fair that I had to pay my mortgage while suddenly people with poorer judgment are given a home for free? On the other hand, it would not be as asinine as bailing out the predatory banking industry.

Marx would have been proud. You folks at BlewOregon must be the smart people.

Marx would have been proud.

Marx had the intelligence and foresight to predict exactly what is happening right now. I can't say the same for you.

Hey, it's not fair to them that their property depreciates when their neighborhoods are dotted with foreclosures or vacant homes that aren't selling. It's not fair when the credit crunch causes them to be laid off and start worrying about defaulting on their own mortgages.

Life's not fair so you don't have to fulfill your contractual obligations? We're going to make life more fair by sticking it to the people who do fulfill them? Doesn't make much sense to me.

Kevin: got any examples?

Here's an example: In the Legislature in February 2008, they were holding hearings on the mortgage reform bill. A sweet old lady was testifying against the bill with her mortgage broker by her side, and they were explaining the great deal that he got her.

Chairman Westlund realized something was amiss in the financial setup she described, so he asked her: "Are you building equity in your house?" She replied that yes, indeed she was. At this point, her mortgage broker sheepishly had to admit to the committee that, um, no, in fact she wasn't.

This was a complete surprise to the homeowner, who apparently thought that she had been building equity this whole time and that her broker had been looking out for her... except it wasn't her broker; he's in business for himself. (Which isn't bad, but she seemed to believe that he had a fiduciary responsibility to her.)

So yes, it would seem that some people didn't get sold quite what they expected.

But no, a massive bailout is lame, because what about people like me who scrimp and save and actually make INFORMED and PRUDENT financial decisions? A plan that penalizes those who made good decisions and continue to pay their bills on time is just about the most short-sighted proposal I've ever seen.

Sub-prime borrowers made poor financial decisions based on the assumption that society would not let so many crash, regardless of the irresponsibility of the borrowing, that if it's borrowing for a house, that's different than other debt, and that since houses could not possibly be worth what they were costing, "the system" must be able to control those factors at will, and would.

Now, it's a game of chicken with society. Gonna pay up or let us pull you down with us? This perhaps the most formative moment in the American psyche. If we do what it takes, regardless, to make sure that come hell or high water these people don't lose their investments, then we will never be able to talk about fiscal responsibility, corporate or personal, ever, with any kind of credibility. We are set for the largest transfer of capital in US history, as the baby boomers' parents die. The nouveau riche have been the worst abusers of the system during this time. If we do not hold them to accounts, all that new money will go the same direction.

We faced this after 9/11 when it was nearly impossible to craft legislation that sorted out the difference between terrorist money laundering and contemporary banking. Here it is again; much of American business-as-usual is based on fraud. You cannot remove fraud from the equation without radically restating the terms on which business operates.

Yeah, I know, fraud and poor judgment. Personally, I think a lot of the "poor judgment" is what I call typical IT fraud. You make a "mistake", which mistake entitles you to do what you wanted in the first place. Which mistake is always charged to the end user. Which mistake never affects their control of future decisions. Meanwhile, those that didn't make a little mistake, are heavily penalized for showing good judgment.

War? Ha! How many people get thrown into a war and don't rise to the occasion or not, as the case may be? The times that try men's souls are the times that involve the decisions that our society is facing over the sub-prime extortion.

Jagermeister, they did forsee this. It's a pure power grab; you don't count, I got mine, now you pay for it. And by the way, F-U for not playing the game, you hater of your own country! Support our poops in the Gulf! Send a clear message! The children, the children! Tie a yellow ribbon! Where's your lapel pin? And Dan Marino could wup your booty! That's your whole gripe. Your jealous of Dan Marino. The only poor judgment might have been buying Fran Tarkenton's products. Not a SB winner; that's the only part we should have shown more caution over! The rest is being a good American. All these dissenters obviously are not. America for the real Americans! We're going to take your resources and give it to our bankers, and there's not one thing you can do about it. It's for the children.

This issue is we open our mouths and fraud comes out. Few societies voluntarily reverse that course. Most often they have to be brought low first, if not completely exterminated.

Would it be fair to those homeowners who have good credit and pay their mortgage every month? Maybe not

I agree, there's no "Maybe" about it.

How about instead of forgiving their entire loan, it's readjusted to current market price and a reasonable interest rate. And to make it more "fair", allow all homeowners (not just those facing foreclosure) to take part in the program.

Right on, Jim, et alia likeminded. Pols need to understand that this is a very different "scandal" than the garden variety mess du jour. The huge difference is that most people don't get a chance to engage in the scandalous behavior. In this case, everyone saw the same commercials, everyone saw the "opportunity". Everyone also could smell it was rotten, and some just did it anyway, while others restrained themselves. Now pols are thinking about spending everyone's money on those that engaged in Nike economics.

In a sense, they're taking their lead from Shrub. Yeah, banks and S&Ls and the monied families made a lot of mistakes. Why are they making out like bandits, and with the taxpayers' money? I predict that those that restrained themselves will suffer every bit as much as those that didn't. How do you get people to engage in constructive social thinking after that?

I cannot see how you separate TARP from a sub-prime bail-out. Yes, they are very different affairs, but the human thinking behind each was identical.

Now Jim H, THERE'S a policy option!

The federal government can issue bailouts not blindly, but based on the premise that the money needs to be used to make homeowner refinancing actuarially viable.

This way, instead of the federal government coming in and saying "Here's a pot of cash," It's saying "Here's an opportunity to clean up your balance sheets and stregthen your expected returns" (which should help free up the credit markets to boot).

Sweet - I hope this passes, then I can quit my job - let the house go into foreclosure, and have the taxpayers buy it for me. Brilliant! Thanks Obama.

Just to expand on Jim H's idea a little....

Homebuyer A has a home with a CMV of $140,000 and a mortgage of $200,000. Rewrite the loan to $140,000 and a low interest rate for 40 years, then place a lien on the home for $60,000 in the name of the US Treasury. Assuming the home goes up in value over time, the lien could be satisfied at the time of sale. If the sale price doesn't fulfill the lien, then the seller could enter into a payback plan with the government over a long period of time, if needed.

This way, people stay in their home while taking responsibility for their situation and the taxpayers don't have to have a financial hit.

Any thoughts...

mp,

So basically instead of just writing it off completely, the homeowner gets a no-payment/interest-free loan for the part of their mortgage that's over the CMV. Anyone with an upside-down mortgage can participate (unlike the current HOPE For Homeowners program).

I like it.

Weaseling out of financial obligations is immoral and can only hurt rather than help the economic picture if done by substantial numbers of borrowers. Lenders are culpable in various ways for the subprime crisis and deserve to take their lumps. However, the notion that their sloppy accounting practices is a license to steal is disgusting.

Have some lenders been steered into bad deals? Sure. But borrowers have been greedy and unrealistic too. I don't understand how people want the full rights of citizenship but plead the incompetence of a child in managing their affairs and want government to act in loco parentis for them.

There is plenty of room for lenders and borrowers to renegotiate because coming to terms is in the interest of both parties. Foreclosure represents failure for lenders as well. What they want, and what the economy overall needs, is a continuing revenue stream.

Wow. 10 posts in a row that agree on a concrete solution toward solving a problem. This has to be a record for BO, and a very good idea.

I think Idler also hit the nail on the head. Some of this is generational testing, seeing if the Reagan baby-boom's participation over results mentality, and belief that to be monitored is to be loved, can be leveraged to create a relationship between gov and citizenry where the gov is in loco parentis.

I guess the question would be, if the bail-out is being justified on the basis that what we are saying is valid, but time is short and the system is about to collapse, would we still be against it? I, for one, would be, regardless.

This thread is righteous, considering the very alarming note on which it began, "I propose a massive mortgage forgiveness program.