So much for the ideas of "free market" or "meritocracy". So much for individual responsibility or personal accountability.
The multi-year housing debacle is headed for a federal bailout package endorsed by the President, the House and the Senate. The leaders that showed no leadership in preventing the housing bubble are now shocked and alarmed into action, falling all over themselves to "help Americans".
But will this bill do anything? Looking at the highlights, I am not seeing much other than the FHA agreeing to guarantee $300B in loans. Presumably banks will either ignore that offer or unload the worst of the worst loans in their portfolio, pretty much guaranteeing that tax payers will pay for the ignorant and the fraudulent.
What you wont see in this package is punishment or accountability for all the wrong-doings. The individuals who knowingly bought more than they could afford. The speculators who gambled on a never-ending gravy train. The investors who were too greedy to stick with traditional investments. The bankers and bond-agencies who were paid to know better and paid to manage risk.
The really tough part of this whole situation is separating the true victims from the folks who should be held accountable for one of the biggest financial crises in history. A crises that many say is still in the 2nd inning...
Housing Bill Will Extend Federal Role In Markets
July 24, 2008
Wall Street Journal
Key points of the housing bill, and their cost over 10 years (to be fully offset by tax code changes and fees):
• Fund to provide more low-income housing: $5.3 billion
• Tax credits for first-time home buyers: $4.6 billion
• Grants for state and local governments to buy foreclosed homes: $3.9 billion
• FHA insurance for up to $300 billion of home loans: $729 million
• Counseling for homeowners facing foreclosure: $210 million
• Loosens restrictions on how states issue tax-exempt housing bonds
• Keeps lenders from foreclosing or increasing mortgage interest on returning troops for a year. Creates financial-counseling program, increases home-loan limit for military veterans: $112 million
• Raises loan limit for lenders to 115% of the local area median home price, up to $625,000
• Raises limit on seniors' reverse-mortgage program to $625,000
• Raises limit on federal debt to $10.6 trillion, from $9.8 trillion
• New regulator for Fannie and Freddie, financed by the two lendersThe bill also authorizes the Treasury secretary to expand credit and buy equity shares in Fannie or Freddie if necessary. The Congressional Budget Office estimates this would cost an extra $25 billion if it happened.
...
The biggest boost for homeowners is a program that would allow the FHA to back the refinancing of as much as $300 billion in home loans for distressed borrowers. Under this plan, the lender or investor holding the mortgage would have to accept at least a 15% write-down in the value of the previous loan. The new mortgage would then receive federal backing.
But lenders wouldn't be required to participate, and many are likely to conclude that they are better off proceeding with a foreclosure or offering the borrower some other means of trying to catch up on payments. The Congressional Budget Office recently estimated that the program would lead to 500,000 borrowers refinancing loans totaling $85 billion.
