Should the federal government offer a bailout for home owners?
Previously published on March 14, 2008
In the past, the Government has given bailouts to industries, such the airlines, which have done little to solve underlining problem. Bailing out homeowners is not about bailing out real estate investors and speculators; it is about helping many American citizens who have been unethically persuaded to obtain bad loans that resulted in out-of-control payments and interest rates. What gives this issues such urgency is that the sub-prime mortgage industry meltdown has spread to the rest of the economy.
The Government is not considering purchasing all impending foreclosures across the Country at full price as this would be impractical and devastating to the economy; the government may need to offer extended tax credits to banks as they write off many of the mortgages and provide potential homeowners with incentives to purchase foreclosed properties, but a complete bailout is pretty much off the table.
Above all, the American people need the Government to halt a deepening credit crunch by stopping American citizens from losing their homes because they cannot meet their mortgage payments. A Government bailout of any kind is not necessarily in order, but it is the responsibility of the government to intervene on the behalf of its citizens by negotiating with lenders.
Although purist free traders, who often look at factors that do not reflect real world circumstances, would almost assuredly oppose government intervention in the current economic crisis, it is the responsibility of government to intervene. A democratic government solely exists for the benefit of its citizens as it is solely an extension of those peoples' freedoms. Therefore, it is the duty of government to help generate and maintain a strong economy that provides for the financial and economic needs of all its citizens.
Furthermore, often government acts in ways that very indirectly benefit the citizen, but when it comes to economy, any potential benefit for the people is fairly easy to understand and its impact is traceable; as such, the economy is an area that government needs to be responsible for.
In discussing the sub-prime meltdown and credit crunch, the economic benefits of government intervention are clear. For those who are about to loss their homes to an impending foreclosure or cannot make an inflated mortgage payment, the programs, which are designed to halt the resetting of an interest rate to a higher annual percentage rate and a higher mortgage payment, allow homeowners to stay in their homes while providing the opportunity to negotiate a fairer manageable mortgage that is affordable.
Furthermore, preventing the foreclosure of millions of homes across the Nation will keep home values steady which will provide home owners with the capital needed to stave off the credit crunch.
Additionally, rising home loan interest rates make it impossible for new home owners to take advantage of foreclosures, so fending off the credit crunch benefits buyers and bankers along with builders whose faltering opportunities are hurting the economy at large. Above all, the government taking major steps to prevent the foreclosure of Americans' home is perfectly within the scope of the responsibility and the purpose of government.
Many of the homes that are about to be foreclosed are worth less than the value the homeowners purchased them for. This means banks that refinance a home either have to provide a loan for something that is less valuable, which normally is bad business, or lose money by decreasing the loan amount while lowering the payments and the interest rate.
Then again, they might also choose to extend the period of a mortgage from thirty to forty years while decreasing the payments and interest rates; however, lenders seem to be increasing new loan interest rates to pay for their bad lending practices while the Fed continues to lower key interest rates. Where the government should be involved is in preventing lenders from passing their costs onto new borrows while offering lenders options that will allow them to start making good loans again.
Above all, a bailout is not necessarily the best solution as it is not the Government's obligation to pay for lender's failing to oversee their loan officers' behavior, but whatever is done, it needs to be done quickly and it needs to affect a greater number of homeowners than what current government intervention is doing.