The Jury is In, The Bailout is Out

You bloggers don’t mince words do you? First off, I want to thank all of you for writing in—a one day record for the Realty Check blog, 165 responses in one day and 9 more floating through the ether overnight (seriously, Jay J., what are you doing blogging at 1:21am???).

I can’t possibly post all your responses, so I thought I would at least list some of the subject lines:

“No Bailout!!” (6 of you chose to lead with that)
“Bailout – are you kidding??”
“Govt. stay out of it”
“This Proposed Legislation is ABSURD!”
“Take the Money and Run”
“Blame??? I never hear about the FED raising rates”
“Housing Welfare??”
“Bailout—no free lunches!”
“A Bailout would be Socialism”
“Government quick to use our money!”
“Keep the government out!!”
“Don’t Aid Consumers’ Mistakes”
“Predatory Borrowers”
“Bxxxshxx to Bailout” (A personal fave)
“Realty Check – You go girl!” (Sorry, couldn’t resist)

Ok, I realize that the CNBC viewer is a certain sort. I realize many tend not to be the most liberal folk, but I’ll tell you, the number of bloggers even mildly sympathetic to homeowners facing default or foreclosure numbered less than five. And here’s the thing: I don’t think you’re all heartless out there, and I don’t think you all are oblivious to the fact that predatory lending and fraud exist and flourished during the real estate boom at the front end of this century. I do think you see this from an investor’s perspective, and I have to say, I think you’re right.

I ranted a little bit about this yesterday, but indulge me if you will. The real estate boom was fuelled by several factors: low interest rates, a proliferation of new, low-cost mortgage products, rapid home price appreciation, good economic times and investor speculation, to name a few. Many of the borrowers who pumped the boom were not subprime borrowers; they were speculators who bought multiple properties using adjustable rate mortgages, with the intention to flip the properties before the rates adjusted. Yes, subprime borrowers got in on the game because, thanks to the mortgage products (and yes thanks to aggressive and often predatory lending), but those same borrowers were banking on the fact that their home would appreciate so quickly that they could refinance just as quickly based on increased value in their home or pull out money in the form of home equity lines to cover expenses.

The result is the same. The boom ended. Rates went up, as almost everyone predicted they would, and subprime borrowers as well as investors were left holding the bag. But this was a bag they themselves filled, whether they filled it with real dreams of home ownership or dreams of a quick and easy buck.

I think government should step in to crack down on lenders who defrauded borrowers, and the banking industry should tighten up some of the lending standards to all borrowers, because both actions, in the end, protect homeowners and banks alike. But a widespread bailout of investors, who gambled and lost, or subprime borrowers who simply failed to accept that they could not really afford the homes and the lifestyles they bought into, is simply unfair to the rest of us who schlep to work every day, pay our taxes and our mortgages on time, and covet our neighbors’ bigger and better houses.

Predatory Borrowers?
We have been bombarded with comments about predatory LENDERS. What about the predatory BORROWERS? The borrowers that purposely vastly overstated their incomes and/or assets, put little or no money down on multiple properties to become a real estate millionaire, etc? Are we going to bail these people out also? -CDB

I'm One of the Victims ...
Well I am one of the victims of sub-prime loan market and I was foreclosed on. I bought into the idea of adjustable rate and then changing to a fixed rate. I lost my home because of it. I am a self employed contractor in the residential building industry and my rate lock expired just as the down turn in the housing market was dramatically affecting my income. Why not some intervention by the government? The mortgage industry sure did not keep me in my home. How about some investigation into some of these brokers and mortgage companies who are gouging the sub-prime people. Why not keep us in our homes with our families and keep a performing loan. Poll the people in foreclosure and see what the response is. I am a single parent and I would have loved to be able to stay in my home and not have to tell my 3 and 4 year old why we had to move. - Bob J.

Banks Created the Mess
Why should the banks be held harmless? They created this mess, by making money available to people who would be struggling to repay the loans in any event. The predatory lending game is not new, but there has never been an effective way to curb such lenders, but bailing them out is certainly counterintuitive. - Ed T.

Why Bail Out the Gullible and Greedy?
We didn't bail them out when they bought, we didn't bail them out when they bought the ostrich farm, why would we bail out the most gullible and greedy now? They took out second mortgages to pay for things that they felt a 'right of entitlement' to. You're entitled to have enough sense to recognize that you can't handle the cell phone bill, how can you handle a house. Do you really want to bail out a house flipper. Shades of Katrina fraud ... - Bill B.

Post Traumatic Syndrome
I am all for the Feds bailing out the sub prime players. But first I would like to receive fed money for the post traumatic syndrome I have developed from living in a time when such a bailout is even being considered! -CB

Can You Bail Me Out?
Dear Senators Schumer, Dodd and Clinton,
It seems I bought a boat, plasma screen, motorcycle, SUV and 12 houses I was going to flip but now I can't afford them, will you please bail me out with taxpayers money??? -JM

Questions? Comments?