Friday, December 14, 2007

A Viewpoint On The Bush Administration’s Homeowner Bailout

I wrote a post last week about an article that I read that discussed some of the specifics of the U.S. Government's plan to work with many of the large banks in an attempt to help millions of homeowners who could be in some trouble when their ARM interest rate resets to a higher rate. On the surface this sounds like a good idea. But as with any kind of situation this large there are going to be advantages and disadvantages. This commentary by Jon Markman on provides a different perspective, and highlights some of the potential consequences of a homeowner bailout like the one presented by the U.S. Treasury Secretary Hank Paulson.

According to Markman, not only will the homeowner bailout create bad habits in those that did not make prudent decision when purchasing their home ultimately at the expense of the rest of the responsible taxpaying public, but it will also have a deep effect on the investors who were counting on the increased revenue from the interest rate increases that they were promised. And not only that, but Markman predicts that the court system will be tied up for years trying to determine who is deserving of loan forgiveness, and I would completely agree with this statement.

Markman also discusses the spill over from the mortgage crisis into other credit industries such as auto loans and credit cards.

How much and how long the current mortgage crisis, and subsequent homeowner bailout will have an effect on our economy and real estate markets is yet to be seen. My personal opinion is that I think Jon Markman is only looking at the problem from one angle. I tend to look at it from another angle. Jon's concern is that taxpayers are footing the bailout, and I would agree, but if we don't attempt to minimize the effects of the housing slump and mortgage crisis, I think we'll all be paying much more for it in the long run. Jon's concern is that investors will be less likely to invest in asset backed securities if they don't see the increased revenue from the increase in interest rates that they were promised, but what will the investors loose if these homeowners being awarded loan forgiveness were to be left alone and foreclose. It's not that I don't agree with what Jon Markman is saying here, but I also think there is another point of view that can be looked at.

-Steve Nicks

[tags] Mortgage Bailout, Mortgage Crisis, Desert Ridge Real Estate [/tags]