Get fired up! Congress considering bailing out SUB PRIME!

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Submitted by hipmatt on March 14, 2007 - 9:32am

You guessed it, there is a proposal to have the responsible American tax payers bail out those who now are facing the repercussions of a toxic loan, in order to save housing and the economy! If this happens, I don't know what I'll do?

http://www.bloomberg.com/apps/news?pid=2...

Senate Weighs Aid to 2.2 Million Subprime Borrowers (Update4)

By James Tyson

March 13 (Bloomberg) -- U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.

``The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,'' Dodd, a Democrat from Connecticut, told reporters in Washington after a speech to the National League of Cities.

Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina. The government needs to provide at-risk homeowners ``forbearance or something like that to give them a chance to work through and get a new financial instrument here that they can manage financially better,'' Dodd said.

Delinquencies among subprime mortgage borrowers hit a four- year high in the fourth quarter, the Washington-based Mortgage Bankers Association said today. The trade group said 13.33 percent of subprime borrowers were behind on payments in the quarter, the highest rate since the third quarter of 2002.

More than two dozen mortgage lenders have gone bankrupt, closed operations or sought buyers since the beginning of last year as the effect of looser lending standards, slowing home- price gains, and less wage growth left banks holding bad loans.

Looking to Help

Congress ``may need to do something much more quickly to provide some protection or you could end up with a lot of poverty and blight,'' Dodd said. Federal aid of a few billion dollars ``may be a lot less costly'' than $164 billion in lost wealth, he said.

Mortgage defaults during the next two years may rise to $225 billion, with about $170 billion tied to subprime loans, according to a report yesterday by analyst at Lehman Brothers Holdings Inc. led by Srinivas Modukuri. Subprime borrowers are those with poor or limited credit backgrounds or high debt.

Dodd didn't specify the channel through which federal aid would be offered. ``I don't want to settle on the specifics of it, but clearly we are looking at what we can do to help out.''

Any formal legislation would have to be approved by Dodd's committee, then passed by both the full Senate and the House of Representatives before being signed into law by the president.

Costly Solution

Federal aid ``would come at a cost,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association. ``It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?''

Duncan expressed doubt that 2.2 million subprime mortgage borrowers will lose their homes, noting that the association lists only 300,000 such borrowers as being in foreclosure now.

Senator Richard Durbin, the No. 2 Senate Democratic leader, said he is open to the idea of helping subprime borrowers while noting that Democratic leaders haven't decided whether to do so.

``We have not discussed it, but that doesn't mean that we can't or shouldn't,'' Durbin said in an interview. ``Senator Dodd is in a key position on the Banking Committee and he's talked to us about the scope of this problem and what the reasonable response might be. I'm sensitive to it. There's nothing worse than a person losing their home.''

Durbin said that Democratic leaders will look to Dodd for recommendations as Dodd's committee examines the issue.

New Bill

Representative Barney Frank, a Democrat from Massachusetts and chairman of the House Financial Services Committee, reiterated today that he intends to introduce a bill to deter lenders from offering consumers mortgages they can't afford.

``We plan to legislate to restrict those kinds of mortgages going forward,'' Frank said after a hearing in Washington. He declined to elaborate on the timing or details of such legislation.

Dodd reaffirmed a plan to introduce a bill that would combat predatory lending. ``There is a difference between a subprime lender and a predator, and I don't want to lose the subprime lender,'' he said.

The Federal Reserve, Federal Deposit Insurance Corp and other U.S. regulators on March 2 directed banks to scrutinize underwriting standards, provide more information to customers about borrowing risks and ensure borrowers are able to repay loans.

``Finally the federal regulators are beginning to indicate that they want to start requiring similar standards to be used for prime and subprime lending,'' Dodd said, referring to the new guidelines.

``I am a strong advocate of subprime lending,'' Dodd said. ``I don't want that word to become a pejorative as junk bonds did.''

While not constituting a drag on the economy, defaults may increase to $300 billion if home prices fall and borrowers forgo refinancing because of stricter lending standards, Lehman said.

To contact the reporter on this story: James Tyson in Washington at jtyson@bloomberg.net

Submitted by hipmatt on March 14, 2007 - 9:42am.

What a shame that congress is even considering this. The
irresponsibility of Americans has gotten even more out of hand.
People need to be bailed out of their toxic home loans? Whose fault
is it that these people paid ridiculous amounts for a home that they
could not afford, with little or nothing down, with adjustable loans?
These loans are what is responsible for the current housing bubble,
and to bail out these idiots would be another huge mistake that the US
would make. They signed all the loan docs, how many times? It is
buyer beware. It is their responsibility,

The best way to deal with this is to hold the lenders, mortgage
backers, and home owners responsible. It will be a tough lesson, but
we will not duplicate the mistakes if we let nature run its course.
Penalizing the few who know how to manage their money, and avoid the
most ridiculous housing bubble in over a decade, is wrong. I feel
that our abuse, misuse, and large appetite for credit and debt is the
single largest problem with our country, which is why we have a
negative savings rate, a huge housing bubble thats just begun to
crash, a stock market that has been faked up to look good, but is now
suffering, and a weak dollar that is becoming even weaker to other
world currencies like the yen, euro, pound, etc. This is a shame.

Submitted by farbet on March 14, 2007 - 9:46am.

This would really cause more problems. \\
You work hard,save for your dwnpayment,play by the rules,work on your FICO---then this.
Wall street has been ripping us off for a long time. How many times the average joe has to pony up!!
What about the "Fraudsters and those with Liar loans. Will they get a chance to rip the system off, again??
Hoy about the builders who were a party to this with a wink, wink here and there.
It's disgusting.

Submitted by SD Attorney on March 14, 2007 - 9:51am.

You heard it here first.

The U.S. Government has done so many things over the past 6 years that have really caused me to reconsider why the hell I continue to put up with it.

I am a responsible tax payer and did not get into a toxic loan because after conducting basic math that I learned in third grade I knew that I couldn't afford it.

Therefore, if Congress does in fact use American tax dollars to bail out suckers who signed up for these sub-prime loans I AM LEAVING THIS COUNTRY FOR GOOD.

Submitted by cr on March 14, 2007 - 10:01am.

What a joke, I hope this is only political fodder to gain Democratic favor in Congress and the upcoming election.

Is this for homeowners AND Sub Prime lenders?

It would never work. It would only bail out companies that would virtually be unable to operate under re-imposed lending standards, and bail out homeowners who would then just have to give the money to these now useless lenders.

I think I'll go buy a home I can't afford so Uncle Sam can give me money to keep it. What BS.

Submitted by hipmatt on March 14, 2007 - 10:08am.

The best thing we can do to prevent this is to email this to every responsible american you know, and then ask them to write Dood and other congress members. I already gave Dodd a piece of my mind. Make this issue known!

Submitted by AK on March 14, 2007 - 10:19am.

As posted in another thread here is a partial list of Sen. Dodd's PAC campaign contributions from the 2004 cycle:

New Century: $9,000
Goldman Sachs: $14,000
National Association of Realtors: $6,000
Morgan Stanley: $4,000
Bear Stearns: $2,000
Countrywide: $2,000
Fannie Mae: $5,000
Washington Mutual: $6,000
Centex: $1,000
UBS: $5,000
Wachovia: $7,000

Submitted by Bugs on March 14, 2007 - 10:19am.

These guys have no idea what the magnitude of the problem they're contemplating stepping into, or how much it will cost the taxpayer to bail these people out. The threat to these borrowers is not limited to the terms of their loans; a lot of these properties are located in overextended markets. The price corrections are doing more damage to these people than the terms of these loans. If the values were still increasing these borrowers could solve their own problems by refinancing or selling.

Say some subprime borrower lives in a $400k house in one of the big metro areas. Getting gov't assistance in recasting their abusive mortgage into a fixed rate mortgage isn't going to make up for the fact that the declining market in that area is going to lower the amount that can be financed, regardless of terms. If that borrower could have borrowed the full amount under conventional terms they would have done so in the first place. The whole reason these borrowers went subprime is because they either lack the income or the ability to manage their income well enough to do that.

Even if we could afford it (we can't), government assistance can't transform a subprime borrower's personal characteristics and it can't prop up the values in an overextended market. All it can do is make the situation worse for everyone concerned, which will be...everyone.

Submitted by ucodegen on March 14, 2007 - 10:25am.
    The best thing we can do to prevent this is to email this to every responsible american you know, and then ask them to write Dood and other congress members. I already gave Dodd a piece of my mind. Make this issue known!

Might help to remind them that while the Democrats have gained control, they can lose control just as easily. This is one such issue that can cause them to lose control very quickly.

In reality, I think they should look at prosecuting some of those that took out multiple liar loans... ie. enforce the laws!! I also believe that banks that created subsidiaries to issue some of these really flaky loans (but stay clear of liability), should have the corporate veil separating them from their subsidiaries pierced.

Submitted by ucodegen on March 14, 2007 - 10:28am.
    Say some subprime borrower lives in a $400k house in one of the big metro areas. Getting gov't assistance in recasting their abusive mortgage into a fixed rate mortgage isn't going to make up for the fact that the declining market in that area is going to lower the amount that can be financed, regardless of terms.

Actually, it might help support these insane prices. So while the responsible buyers are waiting to build up a down payment and have income to support the loan, they are having to bail out the irresponsible who have overextended and bought into inflated housing. Just doesn't seem right.

Submitted by GoUSC on March 14, 2007 - 10:41am.

I am a new poster to this forum but have been lurking for quite some time. I went ahead and sent emails to my Congresswoman and Representative basically stating that they can't do this...

If Congress decides to do something like this I will seriously consider moving out of the Country. Fiscally irresponsible people need to be taught a lesson. If the US Government decides that the best course of action is to bail them out I am going to seriously consider moving to Europe and living under my EU passport.

Submitted by booter1 on March 14, 2007 - 10:52am.

I e-mailed Senators Durbin and Dodd with my thoughts regarding the idiocy of trying to bail out over-leveraged, foolish/greedy(in most cases) borrowers. Maybe if enough people squawk via e-mail they may realize there will be an uproar if they continue down this path.

Submitted by SD Realtor on March 14, 2007 - 11:01am.

Again this should be no surprise to any of us. Remember the golden rule? Those with the gold rule?

Well the lending industry, the real estate industry, construction industry and others affected by housing have a ton of gold and an army of lobbiest in DC. If anyone thought that they would not use every single weapon at their disposal to either mitigate or stall the inevitable, then they were wrong. To think that they have not been planning for a fallback or many fallback positions would be crazy.

It is a very sad commentary on the state of our government. I also have sent letters to my representative as well and it just disgusts me that we are such a welfare state. I guess next we should bail out people who have their cars repo'd or run up the old VISA bill as well correct?

We saw this sort of behavior coming, and there are even previous posts where we discussed that there would most likely be some way that there would be a bailout. I love our country so much, I just don't understand the behavior of the people that run it.

SD Realtor

Submitted by kewp on March 14, 2007 - 11:47am.

"Federal aid ``would come at a cost,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association. ``It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?''"

Thats a great quote. I wonder how all the renters that are scrimping and saving will feel about this. Are the FB's going have to give back all their toy's that they bought with HELOC's, assuming there is a bailout?

The 'only' form of bailout that I would support would be if the Fed created their own subprime lending body that would buy up subprime loans and re-finance the FB's into something they can afford. So if Joe FB is going to default on his 800K ARM, he gets refi'ed into something much lower.

Submitted by SD Realtor on March 14, 2007 - 12:20pm.

Kewp -

The quote from Duncan was great. Let me repeat part of it...

"support the bailout of people who traditionally have not managed credit well?"

How will these people EVER manage credit well if they get bailed out? You don't get born with bad credit, you earn it. Okay there are cases of hardship, bad luck, layoffs, etc... however I have found that those people were the ones who REALLY DID LEARN how to be fiscally responsible. The OVERWHELMING majority of people who I have seen and worked with that have credit problems are chronic. They cannot, will not, and will never be fiscally responsible. They are constantly being bailed out.

I am a renter and I hate it but I do it because it is the responsible thing to do. Why have ANY federal program to help those who have NOT helped themselves.

Teach someone that they can walk away from a mortgage and they will walk away from a mortgage. Then they can walk away from the next one. Let them lose a home and endure the consequences and learn that maybe they need to stay within a budget or get 2 or 3 jobs to support the lifestyle they want.

I do not want to work to foot their bill.

Why is it an issue for people to be responsible for their actions?

ps - kewp this rant wasn't aimed to you, it is just rant to all...

SD Realtor

Submitted by Artifact on March 14, 2007 - 12:29pm.

I hate that this seems to pan out as a "democrat" - "republican" issue since I am somewhat on the liberal side myself. To me it just pans out as the usual political stupidity that Washington manages to churn out once in a while regardless of party.

I am one of those renters who has been somewhat careful, not taken a stupid mortgage, etc.

They are proposing quite a double-edged sword:

First, bail out the people who were not careful - and more importantly in a political sense, some of the finanical institutions and investors.

This of course will then help keep the housing bubble inflated, in essence keeping people like myself, now paying for the idiots who used the sub-prime mortgages to keep their homes while I will not be able to afford one myself as long as we artificially prop up the prices.

So I get the privelege of paying to bail out the lenders and borrowers so that they can keep the homes I should be able to afford but can't -

Nice -

Submitted by kewp on March 14, 2007 - 1:39pm.

SD Realtor,

No offense taken; I appreciate your contributions here greatly!

I think at times we are guilty of just as a myopic viewpoint as the perma-bulls. As with most things, the reality of any situation is somewhere between the extremes of the prevailing viewpoints.

I think the 'devils advocate' approach is that the are poor folks in the subprime market that are not living extravagant lifestyles, that are still at risk of foreclosure. Their toxic sub-prime loans are the best they could do. I have a feeling we will see people like this held up to the spotlight in the MTM by the REI in order to pressure a full bail-out.

That said, my personal opinion is that they should get dinged, just like everyone else. Nobody 'has' to buy; they made a decision to purchase something that ultimately they can't afford. Not a sob story by any means.

But really, who is ultimately to blame here. The fool with the credit, or the greater fools providing it to him? In my opinion, they all need to be punished in the end.

Submitted by meadandale on March 14, 2007 - 1:30pm.

@Artifact

The reason that this is being painted as a liberal issue is:

1) It is being proposed by Democrats in Congress
2) It is simply another example of the nanny state in action that liberals tend to embrace.

Examples?

Drop out of school and can't get a job? No problem, we'll give you welfare. Can't get a good job because you are too lazy to take advantage of free educational and work training opportunities that we've provided? No problem, we'll mandate a living wage. Have kids you can't afford or have more kids when you can't afford the ones you have? No problem, we'll give you welfare and AFDC. Didn't manage to save any money for retirement? No problem, we'll confiscate it from others and send you a check.

I'm fiscally conservative. In general, I believe in a hand up not a hand out.

Don't even get me started about the IRS...

Submitted by Artifact on March 14, 2007 - 1:57pm.

meadandale -

I did not mean that as if it was not being proposed by democrats - The democrats are generally more inclined to propose welfare-like ideas when it includes individuals - while the republicans generally propose equally welfare-like ideas when it invloves business, farmers, fisherman, etc., - Both parties provide "welfare" at the expense of the average taxpayer, just to different groups depending on who your voter base is. If the Republicans were in power this would be a "we have to save the lenders" proposal instead.

In the context of this proposal, I agree that it is a "Democrat" proposal - but I think that the "poor homebuyer" bit is just window dressing for the politicians to hide behind while they try to prop up the businesses who have given them money. I am guessing there will be a number of Democrats opposed to the idea, just as there will be a number of Republicans in favor of it.

Personally, I think it is a horrible idea for the reasons I posted and while I generally consider myself a democrat, I am not a huge proponent of much of the way we go about welfare in this country. I am all for helping people, I just don't think we always do it in a very prudent way.

Submitted by meadandale on March 14, 2007 - 1:57pm.

Artifact,

I wholeheartedly agree that the banks that have gotten rich off of these predatory lending practices in the sub prime market need to face the music. I'm not advocating a bail out for anyone, individuals or corps.

Certainly both republicans and democrats alike want to grease the palms of the financial industry that is their bread and butter. However, I think that you are right regarding their motives. 1) They get to look like a savior for the little guy while 2) helping out their banking friends.

At least most republican politicians wouldn't try and hide their true motives ;-)

Submitted by AK on March 14, 2007 - 2:07pm.

It is, and isn't, a Democratic proposal.

It is a Democratic proposal because the proponent is a Democratic senator who also happens to be a presidential candidate.

It isn't a Democratic proposal because the REIC has bought influence in both parties, and just happens to be using the party in power as its mouthpiece.

Submitted by ibjames on March 14, 2007 - 2:40pm.

ignorance is bliss

Submitted by chewie83 on March 14, 2007 - 3:04pm.

http://www.house.gov/writerep/

Write to your local representative! I already gave him a piece of my mind.

Submitted by drunkle on March 14, 2007 - 4:05pm.

matt drudge is oddly silent on the speculation of a dem give away to the poor. i wonder why that is.

oh yeah, he knows. it's a give away to the rich.

Submitted by dontfollowtheherd on March 14, 2007 - 8:56pm.

THERE IS NO WAY THIS PIG IS GONNA FLY !

How many fiscally responsible TAXPAYERS and more importantly, CONSTITUENTS do you think are going to sit by while Congress asks them to pay for the bad decisions of others? There is no way, no how, they will get very far on this before it unleashes a firestorm of protests. These members of Congress have their livelihoods at stake. Besides all this, the government can't afford it. Look at Bernanke's latest speech about the deficit.

The US is so far in debt already that it would further compromise programs like social security which is in doubt already. Don't think for one minute that John Q Public is going to sit back and let their hard-earned retirement be taken from them because of some stupid political decision. Let them take it from the overblown defense fund or some $200 billion dollar pork barrel project in Iowa.

Submitted by Biotech-Dude on March 14, 2007 - 9:51pm.

This is a Liberal Democrate issue! End of story....

http://money.cnn.com/2007/03/14/magazine...

I can feel it....I'm going to get screwed for working hard and doing the right thing!! We are all going to get screwed! Just wait. As this spirals out of control, the Liberal media will keep pumping up these stories about the poor (mostly low income, minorities) losing thier homes! Yup....I can feel it already. Increased taxes on the "rich" if you are single and making more than $80,000 a year...you are "rich" and you will pay for others mistakes.

Un-friggin-real!!!!!!!!!!!!!!!!!

Biotech-Dude

Submitted by hipmatt on March 14, 2007 - 9:58pm.

I'm glad this pissed you all off as much as it did me. I feel the same way you all do, I have a savings, and rent responsibly, and am waiting to buy again, but this type of gov. behavior will reward everyone who shouldn't deserve the help. It's like giving a gambler cash after he's blown it all.

Please let your voices be heard, or the dumbing down of America will continue.

Submitted by masayako on March 15, 2007 - 1:47am.

I have written to 3 of my local respresentatives already.

Please do the same. This is insanely wrong and should not be allowed to happen.

www.house.gov/writerep/

Submitted by Tone on March 15, 2007 - 7:02am.

Rotting in debtor's prison was once the punishment for those who could not manage their money.

My how the pendulumn has swung.

Submitted by 4plexowner on March 15, 2007 - 8:02am.

IMO it is impossible to have an honest, healthy economic system that is based on a dishonest, fraudulent monetary system

Fraudulent and dishnonest describes the US Federal Reserve System and its fiat currency the US Dollar - the Federal Reserve is a private corporation - it is not a part of the US government and it does not have the best interests of Americans at heart

The current credit/real estate bubble is just one more reason to abolish the Federal Reserve and return to a commodity-backed currency

Another aspect of having a fiat currency is that politicians can use this funny money to buy votes - in this particular thread we are talking about politicians buying votes from the several million people who will lose their homes without a bailout

~

Read "The Creature from Jekyll Island: A Second Look at the Federal Reserve", by G Edward Griffin - this book should be required reading for all Americans

Submitted by SHILOH on March 15, 2007 - 10:54am.

"I am a strong advocate of subprime lending,'' Dodd said. ``I don't want that word to become a pejorative as junk bonds did.''

uummm....he is a "strong" advocate of the worthless lending standards that have created this "subprime" mess and caused the failure of several lenders...

but he doesn't want "subprime" to become a pejorative as junk bond ---i.e., "junk loan" but that is what it is....

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