Monday, February 18, 2008

Hillary's Mortgage Bailout Plan

I find this disturbing:
Clinton has a stunningly simple solution, as stated in one of her TV ads: "freeze foreclosures" for 90 days and "freeze rates on adjustable mortgages." Those are a perfect answer, assuming this is the question: How can the government reward irresponsibility, discourage mortgage lending and raise the cost of financing a home?

After all, it's easy to pass a law prohibiting lenders from foreclosing. But the first result of that would be a lot more borrowers deciding that paying the mortgage is no longer the highest priority. Those who have practiced strenuous frugality in order to meet their monthly obligations would get nothing, and those who behaved recklessly would prosper.

The second result would be to choke off the flow of credit. When a bank makes a loan, it needs some assurance of being repaid. When it isn't, foreclosure offers a way to minimize its loss. If Clinton blocks that option for a time, banks will be markedly less eager to offer loans—particularly for anyone with a less than perfect credit history.
I'm guessing that any such attempt to "freeze foreclosures" would be found illegal. I don't know of any mechanism the President has that would allow them to interfere in private and legal contracts.

I'm still of the opinion that the banks aren't complete fools. They know that foreclosing on large numbers of houses will cause problems in the market, and it will mean even greater losses as they try to sell them. Let's also consider that they will have to maintain them while they try to sell them which means costs of that maintenance or loss of house values.

Then again, these are the same fools that thought selling to high risk customers seemed a good idea. Frankly, I think the irresponsible borrowers and lenders should lose their asses on this. Unfortunately, that will damage the economy and I don't see any way around that.

1 comment:

Granted said...

Seriously, what's the deal? People made bad choices. It's not up to the rest of us to bail them out. If it were, I wante reimbursement from the government for my HD-DVD player. Oh, and $50 bucks for that stupid Ballister-Molina.