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Congress bucks public opinion
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    Here we are, Independence Day. Fourth of July. The day we celebrate throwing off the British yoke.
    And what do we get from the U.S. Senate as we approach this day whose conflict was largely inflamed by oppressive taxes and government favoritism? More government favoritism.
    This time in the form of calls for a mortgage industry bailout.
    Despite the fact that most Americans don't want a mortgage bailout, Congress plows ahead anyway. According to the New York Times, the Senate plan includes a provision to allow qualified owners to refinance into more affordable, 30-year fixed rate loans with a federal guarantee. It also provides first-time home buyers with $8,000 or 10 percent of the value of the home for purchases on unoccupied housing. And the bill would increase the loan ceiling for Freddie Mac and Fannie Mae to $625,000 from $417,000 to facilitate purchases in expensive housing markets.
    While they look like home buyer benefits, these provisions help the lenders. Refinancing keeps people paying the bank and the federal guarantee makes the banks more comfortable (and passes along any expense to the general public). Providing money to people who could not otherwise afford a particular house will get some of these unoccupied houses off the bank’s balance sheet (and put people into situation they could not normally afford). And raising the loan ceiling means Freddie and Fannie and made bigger and badder loans.
    Amazingly, President Bush has threatened to veto the bill if it doesn’t remove a provision for $4 billion to be earmarked for the states to purchase foreclosed homes. The president's position is that this would help lenders instead of borrowers. (OMG! He’s right. ‘Course, even a broken clock’s right twice a day)
    I just wish the president, and the entirety of Congress for that matter, would realize that bailing out any bad behavior only encourages more bad behavior and that a bailout helps the irresponsible at the expense of the responsible.
    And what of the responsible Americans who purchased a house the traditional way? Remember 20 percent down with a fixed interest rate mortgage whose total payment is less than 25 percent of your income?
    Every Web site surfed, every real estate professional visited, every accountant asked will tell you 20 percent down/fixed interest is the safest way to purchase a home. There’s no additional money spent on PMI insurance, there's equity in the house in case the market is down and there’s a need to sell, and the payments are manageable and predictable. Simply an all-around good decision.
    Always has been.
    But then came the 10 percent down loan. Then five percent down. Then zero percent down. I even saw a few 125 percent-of-value loan offers. Then came flipping and no-doc (documentation) loans where little to no paperwork or income verification was required. Then the interest only loans.
    (Does anyone realize that half of all mortgages in California in 2004 were interest-only? And nearly a third nationwide? Yikes!)
    These individuals knew the risks. They knew that a down market could take them out. Go back and read the stories, the people actually admit that these things could happen.
    From the L.A. Times, April 9, 2005:
    “(November 2007) That's when she has to start paying off her loan principal. If interest rates are higher than when she bought her home last fall — something many economists consider probable if not inevitable — her monthly payment will increase by as much as a third.
    ‘I don't know what I'll do,’ said Herron, 32. ‘I'm already working overtime to pay my bills.’”
    I don’t know what in Gotham City these people were thinking, but millions signed anyway.  Over exuberance, I suppose. Folks just didn’t believe a housing downturn was possible.
    What’s really scary is that many of these interest-only loans have yet to convert to interest plus principal. There's plenty more unraveling to come.  
    Look, it's one thing for the government to act like a safety net for society — Social Security, Medicare, unemployment. But to bailout bad financial decisions and decision makers simply encourages more people to take unnecessary risks because they become ever more confident that the government will take money from the productive and give it to the reckless.
    I just hope Bush will veto any Congressional bailout proposal. At least he'd get one thing right before he goes.

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