Mortgage Lenders Do Not Deserve to Be Rescued By Tax-Payers

The U.S. government is working to develop several different programs meant to stave off foreclosures. Although policymakers claim that these programs are for struggling mortgage borrowers, it is obvious that the real goal is to bail out mortgage lenders. The question is: do reckless lenders deserve to be rescued?

By Pat Summers

In a recent article I explained why reckless mortgage borrowers do not deserve to be rescued, but I think it is important to touch on why reckless mortgage lenders do not deserve to be rescued either.

Because, let’s face it–that’s who the bailouts are really for.

President Bush and Congress can’t come right out and say that, so they talk about struggling borrowers and tug on heart strings in an effort to confuse the issue. To seal the deal, they look straight into the nearest camera and say they do not want to bailout mortgage lenders.

The reason they mention the latter bit is because everybody knows that it is mortgage lenders who hold a fair share of the blame for this unprecedented debacle. Mortgage lenders were the ones who giddily made loans they knew borrowers couldn’t pay just to make a quick buck.

That’s not to say that lenders are completely at fault; they needed greedy (and/or stupid) borrowers and politicians who would look the other way for the scheme to work. But it was lenders who initiated the madness.

Pandora’s Box

During the housing boom, some of the more reckless mortgage lenders were willing to lend money to anyone with a pulse. Unlike the old days, you didn’t have to prove that you could afford the house or that you had the means to pay anything on a monthly basis. Heck, you didn’t even have to prove you were employed.

Lenders were willing to loosen regulations for several reasons. First, home prices were rising fast. If borrowers defaulted, it would be easy to foreclose and sell the home for a profit. Second, it was suddenly ridiculously simple to pass the risk off to other parties by bundling the loan with several others loans and selling the whole kit and caboodle to securities investors.

It’s also worth mentioning that there were a ton of new mortgage products created to make it easier to get borrowers into high-priced homes that weren’t attainable with a traditional fixed rate mortgage.

Lenders were living large until the bottom fell out of their scheme. Home prices started to fall versus rising as anticipated. Interest rates also changed direction, eroding the value of outstanding mortgages.

Borrowers began to default in increasing numbers. Most lenders weren’t surprised–remember they willingly and knowingly loaned money to people who couldn’t afford it. The real twist came when some of the investors demanded that lenders take back the more worthless pools of loans. This is why some lenders went bust (212 since late 2006) and why others have been forced to write down billions of dollars in home loans.

Lenders were given enough rope to hang themselves with and that is exactly what they did. Now the government is stepping in to hide how insolvent U.S. banks really are.

The Fed has directly bailed out predatory lenders using billions of dollars that they pulled out of thin air. Bush has initiated a teaser freezer and wants to utilize taxpayer-guaranteed loans to ensure that lenders do not have to buy back anymore worthless paper.

There are dozens of other proposals in the works. Each is different, but the ultimate goal is the same: transfer risk and accountability away from mortgage lenders.

Bailout? No Way!

Mortgage lenders and builders contributed millions of dollars to various political campaigns. That’s why it was so easy for them to get politicians to look the other way during the boom and why it has been so easy for them to convince the government to do something to help afterwards.

If politicians want to bail out the monsters they helped create, well I say more power to them. But they should do it with their money–not with programs that come with a taxpayer guarantee.

I am not at fault for their shallow display of evil and neither are other 98 percent of people who will be flipping the bill generated by reckless lenders. These lenders knew what they were doing wrong and should be held accountable for their actions.

If politicians can’t do that, then taxpayers should. Taxpayers are the ones who stand to lose the most from this mess. They are the ones who will be ensuring that sleazy business people profit.

Popular articles that might interest you:

What You Need to Know About Private Mortgage Insurance

Did you know that you could be required by a lender to have private mortgage insurance (PMI) as part of the terms of your home loan? Private mortgage insurance can raise a homeowner’s monthly payments. Read this article to learn the details about private mortgage insurance.

Pieces of a Mortgage

Are you looking for a straightforward explanation of mortgage terms? Do you want to know how your money is being divided into principal, interest and fees? Read this article to learn more about these sections of a home loan.

Mortgage Prepayment Penalties Can Hit First Time Home

For many first-time homeowners, the excitement of purchasing a home may distract them from examining every detail of their home loan and one detail that many first-time homeowners overlook is the prepayment penalty. Read this article to learn how this penalty can affect the refinancing or selling of your home later on.

A Balloon Mortgage Offers Lower Monthly Payments and Higher Risk

Are you considering a new home loan? One type of new home loan is a balloon mortgage, which allows homeowners to make lower mortgage payments. Read this article to learn if a balloon mortgage home loan fits your financial needs.

Taking Your Chances: How Mortgage Applications Are Reviewed

Do you know where your credit stands? Knowing your credit standing can help you be better prepared when you meet a lender to discuss your home loan application. Read this article to learn how you can prevent being rejected by a lender.

Can’t Afford 20 Percent Down on Your New Home? How to Avoid Private Mortgage Insurance (PMI)!

Want to buy a home, but can’t afford 20 percent down? With some creative financing, you may be able to avoid having to purchase private mortgage insurance.

Mortgage Rate Freeze FAQ

President Bush announced a plan last week to freeze interest rates on subprime loans due for rate resets. Read on to get the details of this plan, including how it works, why it has been initiated and whom it will help.

Want to Pay Off Your Mortgage Early? Don’t Be Suckered In by Equity Enhancement Programs!

After buying a home, the next thing homeowners are probably thinking of is how to pay off their mortgage early. When the bank sends a letter about equity enhancement programs, homeowners may think they’ve found their answer, but can these equity enhancement programs be really as good as they sound? Read this article to learn how these financing programs stack up.

When Should You Consider Refinancing Your Home Mortgage?

There are a number of reasons you might choose to refinance your home. It is critical, however, that you make sure that your financial plans and goals are clear before making such a decision.

The Three Reasons Why Homeowners Refinance

A mortgage refinance can benefit the homeowner in many ways. Here are the top three reasons why people adjust their mortgage terms.

What is Home Refinancing?

A homeowner’s decision to refinance can lower a monthly mortgage payment significantly, especially when interest rates are low.

read more | digg story

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: