November 1, 2008

Mortgage Bailout Needs More Scrutiny

From the NY Times:

“If the government says, ‘Prove that you can’t afford your house and we’ll redo your mortgage,’ then people are going to try to qualify,” Mr. Schiff said.
In that situation, those who will benefit the most are the ones who, unlike Mr. Lawrence, spent far beyond their means — who refinanced their houses and used the cash to buy toys and lavish vacations, or sometimes just to pay the bills.

“You put something down, you have something to lose,” Mr. Schiff said. “You put nothing down, you’ve got nothing to lose.”

This mortgage bailout possibility parallels many other issues that taxpayers foot the bills for. Too many people were given loans they did not qualify for – putting those who did qualify, who did pay their mortgages, in an ill-tempered mindset. How many condos have bad apple owners who bought and didn’t pay mortgages, assessments and/or utility bills? How many of these apples refinanced and blew the money on toys just as the article states? How many condo associations were then pulled into the domino effect created by bad apple owners who were not capable or mature enough to take care of their responsibilities?

So, when the utilities are turned off for non-payment – no problem, just run an extension cord to another part of the building and steal electricity. Until the gas company wised up, the locks on meters were easy enough to remove to restore service and steal gas. Meanwhile John and Susie Dumb Apples re-financed, by-passing the association treasurers on assessment data and bought toys and continued to live beyond their means!

Even when their expensive fantasy caught up with them and they were foreclosed on or abandoned the property, the other condo owners still had to foot the reality of bills out of their own pockets. This bailout cannot be done as a blanket bailout! The John and Susie Dumb Apples will retain their home (or move back in) and still not pay their legal share of the bills.

At least with single family dwellings – a neighborhood is blighted with board-ups but not burned monthly with utility and insurance bills for the properties.

And where’s the investigation on these lenders who didn’t do any homework and cashed in on commissions?


BurrDeming said...

Interesting observation. Thank you.

There is more, of course. The bailout started with problems.

Staffing the bailout is one. Those with the expertise are also the ones tied in with the institutions that went wrong on our dime.

The bailout itself has too few safeguards. I'm not really persuaded that it's okay for banks and other powerhouses getting federal funds to spend millions on inappropriate activities because it's separate from the bailout. Tax money is freeing up their limited funds, so it still comes back on us.

AIG really gets me mad and I'm not alone.

The North Coast said...

The bailout was never really intended to do anything other than bail out financial firms and guarantee continued obscene paychecks to their officers and other key people- the very people who created the debacle to begin with, and who are being paid massive salaries and bonuses even though their management put their companies in the tank.

It won't help me buy a place, or get a better job, nor will it create jobs to offset those being lost, nor will it help condo owners stuck with the assessments and damage left by defaulting condo owners. It won't help underwater borrowers stay in their overpriced homes, not that these people deserve such assistance.

It will only help destroy our currency and drive inflation by adding to the public debt, and it will help set us up for the next debacle by attempting to correct the problem by encouraging more of the behaviors that got us into trouble to begin with- rampant debt creation combined with freedom from responsibility for the consequences.