As I wrote in my article, Can the Government Solve the Foreclosure Problem, the state and federal governments are considering using taxpayer money to bail out people in foreclosure. Is this a good or bad idea?
At first blush, it appears awfully unfair, in that the government would take your money and give it to someone who made an irresponsible financial decision and would thus profit from it. On the other hand, one could argue that the government's lack of regulation on loans, in part, led to the problem.
From a purely capitalist, free-market position, I'd say, “Absolutely not – let the market correct itself and allow economic darwinism take its course”. From a sympathetic standpoint, what's $300 million in the scheme of things, since most of it would go to HUD counseling agencies to help poor people refi and keep their homes?
Despite the animosity from people who object to paying for this “robin hood” program, it would help everyone, since less foreclosures helps keep your neighborhood home values up. However, the harsh reality is that $300 million wouldn't change anything, and like most government programs, it would be nothing more than lip service and bureaucracy.
Nobody wants to see low income families on the street, but it is a bad precedent for the government to have too many programs to bail consumers out of bad financial decisions. True, some of the lenders are to blame, but they are already being punished in their pocketbooks. Many lenders who originated and sold these loans are now having to buy them back from the investors they sold them to.
As a final note, most states do not have extensive regulation of the mortgage broker profession. I am not much for excessive government anything, but having a sufficient fund to reimburse the victims of the worst predatory lending would be a good idea. Real estate brokers, attorneys, and other professionals pay into a fund managed by the state for the protection of clients that are scammed, and so should mortgage brokers. In my own state of Colorado, mortgage brokers have to carry a small bond, which is almost a joke. California, on the other hand, requires a mortgage broker to first be licensed as a real estate broker, which I think is a good idea.
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