There are lots of problems to this bailout, including continued payments to ACORN and other left-wing causes. The biggest is that the bailout is designed to continue business as usual. HUD requires Fannie Mae and Freddie Mac (both GSEs or Government Sponsored Enterprises) to put 50% of their portfolios in low to moderate income mortgages. Most low and moderate income people by the government's standards can't really afford to own a home. HUD's continued increases in percentage of such loans created a new market, called sub-prime loans, for people who don't qualify under standard guidelines. HUD also requires, and Justice strenuously enforces, lenders to stop using "old , outdated metrics" such as income verification, job stability, credit history, and independent, out-of-house appraisals. Finally, most lenders hold very few of the mortgages they write; the bulk of them are packaged and sold to other lenders, sometimes multiple times.
Since Fannie Mae and Freddie Mac were buying sub-prime mortgages as fast as possible to meet their Congressional mandates, lenders were free to write mortgages with little chance of being paid back - Fannie Mae and Freddie Mac accepted the risk (backed by the tax payers of course), the banks and mortgage companies reaped the profits. This led to such unsound practices as zero percent down or even up to 125% mortgages, bait-and-switch variable rate mortgages (where the buyer is conned into buying a mortgage that will go up even if the economy and the prime rate stay even because it is artificially low at inception), fifty year mortgages, mortgages where the payments are lower than interest servicing with a balloon payment due in five or ten years (under the dual assumptions that the homeowner will be earning significantly more income then and that the house will have appreciated in value enough to be refinanced for the original cost of the house plus the accrued interest and the cost of refinancing), and mortgage lenders using in-house appraisers (if you know a GSE is going to purchase the loan and assume the risk, you don't really care if you are lending $100,000 for a $50,000 house because the GSE is going to give you back your $100,000 plus part of the interest on the $100,000 loan.)
The bailout plan is, bluntly speaking, horrible. The Democrat (and Senate Republican) plan is only marginally better than the Bush plan, which had the same goals and general conditions (albeit no payouts to ACORN and other left-wing groups) plus a complete lack of Congressional or judicial oversight. (Imagine the incredible idiocy of giving one unelected official complete control over $700,000,000,000!) If the federal government buys these sub-prime mortgages, then lenders and Fannie Mae and Freddie Mac will continue doing the same stupid things that got us into this mess.
The House Republicans have a better plan for a bailout, from what I've seen. Instead of buying the sub-prime, at-risk mortgages to make Fannie Mae and Freddie Mac solvent again, loan them the money to weather this crisis. (The tax payer is already on the hook for these mortgages in either case, even if Congress does nothing.) Put in real changes to the way the mortgage industry operates - require a minimum 10% (not including closing costs) down payment on all mortgages except VA, end in-house appraisals, and add in the Democrat bailout bill's limitations and controls on executive pay and bonuses and the increased oversight, and you might have a decent plan. And sub-prime mortgages must be banned. Common sense should tell you that if you can't qualify for a mortgage at the going rate, you certainly can't afford it at a higher rate no matter what financial gyrations a lender goes through. The problem CAN be fixed, but subsidizing rich people with poor people's money will just dig a deeper hole.
Since Fannie Mae and Freddie Mac were buying sub-prime mortgages as fast as possible to meet their Congressional mandates, lenders were free to write mortgages with little chance of being paid back - Fannie Mae and Freddie Mac accepted the risk (backed by the tax payers of course), the banks and mortgage companies reaped the profits. This led to such unsound practices as zero percent down or even up to 125% mortgages, bait-and-switch variable rate mortgages (where the buyer is conned into buying a mortgage that will go up even if the economy and the prime rate stay even because it is artificially low at inception), fifty year mortgages, mortgages where the payments are lower than interest servicing with a balloon payment due in five or ten years (under the dual assumptions that the homeowner will be earning significantly more income then and that the house will have appreciated in value enough to be refinanced for the original cost of the house plus the accrued interest and the cost of refinancing), and mortgage lenders using in-house appraisers (if you know a GSE is going to purchase the loan and assume the risk, you don't really care if you are lending $100,000 for a $50,000 house because the GSE is going to give you back your $100,000 plus part of the interest on the $100,000 loan.)
The bailout plan is, bluntly speaking, horrible. The Democrat (and Senate Republican) plan is only marginally better than the Bush plan, which had the same goals and general conditions (albeit no payouts to ACORN and other left-wing groups) plus a complete lack of Congressional or judicial oversight. (Imagine the incredible idiocy of giving one unelected official complete control over $700,000,000,000!) If the federal government buys these sub-prime mortgages, then lenders and Fannie Mae and Freddie Mac will continue doing the same stupid things that got us into this mess.
The House Republicans have a better plan for a bailout, from what I've seen. Instead of buying the sub-prime, at-risk mortgages to make Fannie Mae and Freddie Mac solvent again, loan them the money to weather this crisis. (The tax payer is already on the hook for these mortgages in either case, even if Congress does nothing.) Put in real changes to the way the mortgage industry operates - require a minimum 10% (not including closing costs) down payment on all mortgages except VA, end in-house appraisals, and add in the Democrat bailout bill's limitations and controls on executive pay and bonuses and the increased oversight, and you might have a decent plan. And sub-prime mortgages must be banned. Common sense should tell you that if you can't qualify for a mortgage at the going rate, you certainly can't afford it at a higher rate no matter what financial gyrations a lender goes through. The problem CAN be fixed, but subsidizing rich people with poor people's money will just dig a deeper hole.
