A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.
Government assistance and intervention when it comes to housing and mortgages is always a thorny issue. First, it?s important to note that when the government does anything monetarily speaking, it?s paying for those activities with our tax dollars. As such, we tend to get sensitive when we think about where our tax dollars or going and whether we feel like that?s the correct allocation for money that could?ve gone to our pockets. In the case of housing and the government?s plans to rescue the housing market, we?re caught between our morals and our wallets. I don?t like watching people chain themselves to their house, either, but who?s fault is it really? Is it the government?s job to make sure you keep your home? There aren?t any easy answers here.
Of course what we do know is that things are bad, particularly in the area of foreclosures. The rapid drop of housing prices has left 7.5 million homeowners ?under water?, which means their mortgage obligations are more than their houses are worth. Prices haven?t shown any signs of letting up in that regard either. Home prices have continued to fall for 25 consecutive months as of August, and in 10 major markets you?re looking at a 17.7% plunge year over year. Worse still, many analysts don?t expect things to bottom out in the near future.
Whether the government should help in light of these events, however, is murky territory. After saving Freddie Mac and Fannie Mae from certain bankruptcy and pumping $700 billion dollars to help loosen up air tight credit markets and help shore up financial institutions that have been slammed by souring mortgage securities, you?d think they?d have done a lot already. Yet it?s expected that the government will announce a new plan to devote $50 billion to addressing bad mortgages and saving homeowners directly. They?ll accomplish this by incentivizing lenders to bring down mortgage terms to more favorable levels. In exchange, the government will offer to guarantee a portion of the mortgage in case the homeowner re-defaults (is that even a term?) on their mortgage.
That?s all well and good, but there?s a number of issues to be decided. First, most homeowners that are current on their mortgage and busting their ass to make ends meet have to wonder why their tax dollars are getting streamlined into making mortgages more favorable for consumers who bit off more than they could chew. How will the government efficiently decide who was a victim of predatory lending and who just wanted the big house and nice car and didn?t think about the price tag before it was too late? More than likely they won?t bother, and will offer help to anyone who qualifies under their conditions.
Given the already ballooning amount of Federal Debt, one has to wonder how much more money the government can pledge without running the risk of defaulting themselves.Click to See the Latest Mortgage Rates»