Homeowner bailout draws ire

As Congress moves to aid distressed US homeowners, the prospect of a new rescue is drawing fire from a diverse array of activists, economists and consumers opposing what they call a bailout.

The House of Representatives on Thursday approved a bill to create a 300-billion-dollar federal guarantee for new mortgages for people who may be at risk of losing their homes. President George W. Bush threatened to veto the measure, calling it a reward for speculators and lenders.

While lawmakers are eager to avert a wave of foreclosures that could trigger further economic shock waves, some argue that any new program would help a small segment of the population who made risky bets on the housing market.

“Do not bail out greedy homeowners that took out risky mortgages to buy homes they can’t afford,” wrote a Norwalk, California, resident identified as David R. on a website called AngryRenter.com launched by the conservative activist group FreedomWorks.

The website has collected over 44,000 signatures of renters opposed to using tax dollars to aid what it claims is about two percent of the US population facing foreclosure.

“What happened to personal responsibility? What happened to living within your means?” added another commenter identified as Jennifer M. of Houston, Texas.

“People who live in houses they can’t afford, and knew they couldn’t afford, should not be bailed out. I rent a house and am saving to buy a house. I will buy a home I can afford.”

Diana Furchtgott-Roth, an economist at the conservative Hudson Institute, said any new program would be “taking from people who made prudent decisions … to give to people who have been fiscally irresponsible.”

She said lawmakers still want to act on the plan because “they all want to be the knight coming to the rescue on the white horse.”

Kenneth Scott, professor emeritus of law and business at Stanford University, said such aid programs can be easily manipulated to reward risky activity.

“If the prerequisite for getting assistance is that you’re delinquent, it’s very easy to become delinquent,” he said. “You just stop paying and if that gets you a significant amount of money, what would you expect people to do?”

Scott said there is pressure to help homeowners in the wake of a Federal Reserve-backed effort to rescue investment bank Bear Stearns in March.

“The question that ought to continually be asked is whether you are creating incentives for a repetition of the present overhang,” Scott said.

He added that speculators and unscrupulous lenders “will anticipate there would be some form of government payment if things don’t go well.”

Yet an aid program has strong political momentum as seen by the House vote of 266 to 154.

A similar plan is in the works in the Senate, where Democrat Chris Dodd hailed the work done by the House as “a clear signal to Americans — and the White House — that Congress is committed to helping people keep their homes and stabilize the markets.”

Representative Steny Hoyer, the majority Democratic leader in the House, said the bill would help a troubled economy.

“The slumping housing market has had negative, rippling effects throughout our economy,” he said. “And thus, it is imperative that we take responsible, reasonable steps such as this to strengthen our weak economy, and ultimately benefit all of us.”

But House Republican leader John Boehner said the measure is “forcing responsible homeowners and taxpayers to pick up a 300-billion-dollar tab to bail out scam artists, speculators, and reckless borrowers.”

Troubled loans and subprime borrowers cover a broad economic spectrum including many wealthy borrowers in some of the booming home markets, said Todd Sinai, economist at the University of Pennsylvania’s Wharton School of Business.

Sinai said it is hard to come up with an aid package that is fair to all taxpayers. Most programs being mulled “tend to be bailouts to the lenders, not the borrowers,” he said.

“It is hard to argue that if there were no broader societal benefits, that bailing out subprime borrowers who were not the victims of fraud or deception is good economics,” Sinai told AFP.

“The reason people are doing it is that people are worried about a collapse of the housing sector, which would be bad for everyone.”

7 Responses to "Homeowner bailout draws ire"

  1. Elmo  May 12, 2008 at 9:27 am

    Not having seen any details, I find it difficult to see how this is going to harm people like me who have been making on-time mortgage payments. Of course I can’t see how allowing gay people to marry is going to threaten my marriage either.

  2. Greyhawk  May 12, 2008 at 1:54 pm

    Let me get this straight. We have already bailed out the businesses that made these bad loans to people they knew could not pay them off. Some of these loans were “Adjustable Rate Mortgages” which can be raised to impossible levels for no apparent reason. We gave hundred of millions of dollars to the companies that are guilty of “predatory lending” but we aren’t willing to help the people who have been victimized by those companies? There’s something fundamentally wrong with this picture. Our leaders have been sucking up to big businesses long enough. It’s time for the average American to get some of that help.

  3. woody188  May 12, 2008 at 2:10 pm

    The bill does more to help lenders not borrowers. And for the record I am against bailing out investment bankers and mortgage companies as well.

  4. Janet  May 12, 2008 at 2:29 pm

    Some of these people were victims of unscrupulous lenders. It is also a house of cards that will have an effect on everyone if it falls.

    What you have to also realize is that the renters who are opposed to this, may themselves be evicted because their landlord home owners go into foreclosure. People who have homes in areas where there are large numbers of foreclosures will not only see their own values go down drastically, and their homes unsellable, but they will find themselves in neighborhoods that have turned into ghost towns and vandalized slums because there are so many empty homes and nobody to take care of them. Those in communities that have Home Owners Associations (HOA) will find themselves with no outside maintainance or repair services because nobody is paying the dues so the landscapers and other vendors can’t be paid.

    The people who have lost their homes and the businesses that cater to home owners will suffer. The schools will suffer because there is not enough tax revenue. Then there will be a shortage of police and fireman.
    The list goes on. This isn’t the time to have the Republican view of “I’ve got mine, Screw You” mentality.

  5. woody188  May 12, 2008 at 11:21 am

    It’s harmful because some one has to pay for it. People seem to forget that all these packages the Congress approves have to be funded. They currently borrow it from the Chinese or other foreign investors. If we don’t pay it back then it’s left for our kids or grand children to pay back. Talk about taxation without representation!

    Hey kids! Pay my bills because I was too greedy or stupid to reign in my spending.

    The only thing that will fix the housing market is to lower inventory and prices. Until that happens the slump will continue. All Congress has done is approve a package to prop up a broken system instead of allowing the broken system to self-implode. This is going to be an expensive lesson for us all. Congress has decided to put us all on the hook for what 2% of our citizens and investors did to screw themselves.

  6. Elmo  May 12, 2008 at 11:41 am

    As opposed to the normal method where we all pay for what the current cronies get, I presume. It’s ok to give corporations welfare, it’s ok to bail out Wall Street, but it’s not ok to help the people who aren’t already well-connected. Of course, how stupid of me to forget that.

  7. switters  May 12, 2008 at 1:02 pm

    If you classify tax breaks for corporations as “corporate welfare” the only thing I’m sorry about is that we don’t do more of it. Corporations need tax breaks. Everyone who pays taxes needs breaks. As many as we can give them.

    Providing a bailout for homeowners sets a bad precedent. We’ve got to start saying no to these types of programs, and the time to start is yesterday.

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