Housing Bailout Bill To Rescue Lenders?
I first heard of Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC, back in 2004. Believing that the housing boom was about to end, in May of that year Baker sold his two-bedroom condominium in the Adams-Morgan neighborhood for $445,000, clearing $270,000 after taxes and commissions. He then rented a two-bedroom condo just two blocks away. While his monthly outlay of $2,200 was about the same as what he was paying in mortgage, taxes, and maintenance at his former place, he invested the remainder of the money in corporate bonds paying about 7% annually in interest. He said at the time, “I’m just much better off renting.” And sure enough, the housing bust came…
I happened to come across a piece by Baker in TPMCafé from July 6 that pointed out some potential problems with the housing bailout bill making its way through Congress. The economist wrote:
The Congressional Budget Office (CBO) is not terribly optimistic about the success of the housing bailout bill going through Congress. They project that 35 percent of the homeowners “helped” under the plan, or 140,000 families, will find themselves again facing foreclosure. The reason for the pessimism is that the lenders get to decide which loans enter the program. Naturally, they will pick homeowners who they think will be the least likely to make it.
I wonder what the folks who support this bill will tell those 140,000 families? Many of these families will struggle to make their mortgage payments for 2 or 3 years, sacrificing health care, child care and other necessary expenses in a hopeless effort to hang onto their home. At their end of their struggling, they will end up out on the street, foreclosed a second time.
That is what Washington policy wonks call “asset building.”
That is what I would call “half-assed.”
While the CBO is pointing out the possibility of 140,000 second foreclosures, they also note that lenders may receive $680 million with the passage of this bill. Baker wrote:
As a result, we see Congress rushing to push through a bill that CBO projects will hand $680 million to lenders. Yes lenders — you know, the folks who issued predatory mortgages on an enormous scale to low and moderate income families in the last few years. Given the structure of the program (it does nothing to prevent loans from being issued at prices that are still inflated by the bubble), it is questionable how much any homeowners will actually be helped.
Sounds like it’s the lenders, not homeowners, who are being rescued by this bill.
Source:
“CBO Projects Housing Bailout Program Will Send 140,000 Families Into Second Foreclosure”
Dean Baker
Talking Points Memo Café, July 6, 2008
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