Who Will Benefit from the Mortgage Foreclosure “Bailout”?
Article by Trace Morgan
The mortgage bailout originally announced as a way to help as many as nine million homeowners avoid foreclosure seems destined to be a resounding failure. Most notable is that with all the brilliant economic minds available, this plan is the best the government could come up with. Criticized as another entitlement program from the start there has been resistance from lenders and so far this “bailout” has resulted in total confusion for homeowners.
Truth is, foreclosures are no longer fueled by sub-prime loans. The economic crisis is now affecting homeowners with fixed rate loans who have owned their property (and made payments) for many years. Job losses continue to mount and with no income mortgages cannot be paid. Loss of medical insurance demands some people choose between making the mortgage payment or buying life-sustaining medications.
Those not receiving any help under the current plan are often the home owners most worthy of aid. People who saved their money and made significant down payments on their homes will not qualify for the mortgage bailout. Those who took riskier 100 percent financed loans will be subsidized.
The result is that homeowners in hardest hit states such as California and Florida will be subsidized by responsible homeowners in other states who avoided risky loans.
Many who have lived in their homes for years and slowly built up equity will not qualify for the government program – while many people who used the housing bubble to refinance and pull money out of their homes to use for vacations, college tuition, new cars, etc will be saved.
This redistribution of wealth by putting the burden of responsibility on financially responsible citizens to pay for those who acted irresponsibly is a major flaw in this plan.
When doing the right thing and living in a fiscally responsible way is perceived as being punished in favor of those who behaved foolishly with their financial transactions, a backlash is certain to occur.
It remains to be seen if recent public demonstrations against bailouts and taxation will escalate into serious protests about redistribution of wealth that is occurring with many of the new Federal programs. Whether the protests are in the streets or the voting booths, indications are this mortgage bailout will be one of the reasons.
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