Some Foreclosures Cannot Be Helped, Says Treasury Dept. I Agree, And Nor Should They Be.

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I just finished reading a recent article about Treasury Secretary Henry Paulson saying that there are many foreclosures that cannot be helped; but I would venture to say that there were even more than he thinks that shouldn’t be bailed out, and for different reasons. Here is what the article says:

“Many of today’s unusually high number of foreclosures are not preventable,” he said in prepared remarks to a mortgage-lending forum meeting in Arlington, Va. “There is little public policymakers can, or should, do to compensate for untenable financial decisions.” Paulson said that there were 1.5 million home foreclosures started in 2007. He said some economists estimate there will be about 2.5 million foreclosures started this year.

I know the Federal Gov’t has been working on different ways to help people keep their homes, and I know that a complete housing collapse would finally send this country into the Depression it has been dancing around for 2 years. But I still don’t think it is a good idea. Lost your job? I can see giving you some help. Became disabled? Sure, of course. But bail you out because you took on a loan for more than you could afford?

Some people say that is heartless, but I disagree – after all, if you bought a giant truck when gas was $2.50, should you get bailed out of your car loan because you cannot afford the gas for it any longer now that it is $4.89? Should someone who charges a flat-screen TV and home entertainment system to a credit card get bailed out of having to pay for it because they decide it’s too expensive for them after they get the TV hung on the wall?

Too many people are only about short-term reward and give no thought to long-term planning or consequences, and the housing crises is partially caused by those people.

I was on the phone the other day with friends I left behind in California having a discussion about just this topic, and I was telling them about home prices here and how “affordable” it is compared to Los Angeles. Myself and many of my friends do not own homes, yet most of us all make a decent living and are comfortable in their financial situation. However, because we couldn’t afford a solid, 30 year, fixed rate mortgage in the town we were living, we continued to rent. We are going to start looking at buying now that we live somewhere affordable and prices keep dropping – thanks to the people who took on more than they could handle. We can pretty much make an offer we are comfortable with and know that if they don’t accept it, there are plenty of other houses to choose from. It’s a good time to buy, and it could get even better. Patience comes to those who wait!

I know it is not PC to say that homeowners should not be bailed out by the Feds, but I cannot accept that it is OK – and neither can any of my friends who did the responsible thing and waited until they could actually afford something. Our government has bailed out some 1.5 million homeowners in the last 12 months – that is a lot of money being spent to rescue people from their own negligence. (which is money we don’t have anyway) Like I said, if you have a regular fixed mortgage that you could afford before and now you cannot due to job loss or an accident, I have no problem with offering a little helping hand. But if you took on a 5 year, interest-only, no payments for 60 days, “you too can afford a house the same price as someone making 10 times what you do” type of mortgage, then sorry – I don’t think anyone should be bailing you out. Walk away if you must; I would prefer that to my tax dollars being used for this. (Although I don’t think that is right either) I have written about this before but my conversation with my friends in California and this recent article got me thinking about it again. After all, if the government is going to bail out people who were negligent in their choices, what should the rest of us get? How about college education for my future children guaranteed at an incredibly low interest rate? That would sure help me out! Personally I don’t want anything from the Feds for my behavior, but it just doesn’t seem right how they are going about bailing out so many people that should have known better.

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Comments (13)

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  1. Frined says:

    I absolutely agree with you. I guess what really irks me is how they make it sound as if people will be homeless because they ‘lost their house.’ No, they just won’t own a place to live. Renting a home for far cheaper than what they are mortgaged for will actually save them money in their monthly budget, provide them a shelter, and begin to stabilize this mess. Remember, the Feds were one of the reasons we’re at this point (cheap money policies), do we really want their solutions?

  2. Laura says:

    I completely agree with you! My friends and I often have a similar conversation…we are waiting until we can actually afford a house. It’s not fair that people who were irresponsible about buying get bailed out in my opinion.

  3. Stef says:

    Thank you so much for writing this post! I am sick of the media portraying these people with homes in foreclosure as victims!!! The government should not bail you out for making poor financial decisions!

  4. Stacey says:

    Thanks for the brutal honesty. I am also frustrated by the number of people expecting a handout from the government. While I know that many people are suffering due to the economy and unemployment, I also know several people in foreclosure due to their own bad judgement. How is it fair that they receive preferential treatment, when those of us fighting to eliminate debt, live a more frugal lifestyle and save for the future are ignored?

    Just as tapping into an IRA is allowed under extenuating circumstances (admittance to a nursing home, disability, unemployment, etc.), government assistance should also be based on true need. The worst happens to good people, but we can’t and shouldn’t expect Big Brother to help everyone.

  5. Adam says:

    This also gives rise to what economists call ‘moral hazard’ – in essense, people change their behaviour because they have a reasonable expectation that the government will support them if something doesn’t work out. That encourages people to take on more and more risky loans, because they believe that the (negative) consequences will be born by the taxpayer, not themselves!

  6. PT says:

    Great opinion piece, David. I couldn’t agree more. We did it the right way and I’m proud of that. I’m not sorry for these folks one bit. They should go rent like I did for 10 years, while saving up.

  7. david says:

    Exactly PT, exactly. Thanks everyone for your support and comments!

  8. The Baglady says:

    Unfortunately, it is an election year, and the politicians want to seem like they are addressing the issue. However, they’re going about it in a completely idiotic manner.

  9. Should All Victims of Foreclosure Be Helped?…

    Right now, there is a lot of effort being put into helping those who are "victims" of foreclosure. But are they all victims?…

  10. Melissa says:

    I completely agree with you here, and I’m surprised at how many people I talk to who wouldn’t agree. Everyone (including the media) seems to act like getting bailed out is their god-given right as an American. I also liked your truck/expensive gas metaphor. The one I use is: I have 60k in student loans from getting my B.A. and now make 20k a year. But even though my degree is now worth less than what I paid for it, is anyone going to bail me out? No!
    I can only hope the government doesn’t end up bailing out these people and putting the burden on the rest of us who weren’t stupid. As frugal as I am, even I might consider it a waste of time, if I can do stupid financial things instead and get rescued all the time for them…

  11. Dawn says:

    While I agree that people who made negligent financial decisions shouldn’t be bailed out by the government, I think it goes unsaid that the government is really bailing out the banking system more than the individual homeowners. Individual homeowners aren’t the real problem; the real problem would be if the banks actually had to take back all those houses.

    Also, remember that it takes two to tango. The borrowers couldn’t have made those negligent financial choices had the lenders not been willing to sign off on them (not to mention that the lenders came up with the interest only, negative amortization and other risky mortgage products).

    No one involved in those transactions is blameless.

  12. […] (and political) world lately is the government bailouts surrounding the mortgage crisis.  In this article at My Two Dollars, the writer expressed a lot of my sentiments.  While I do feel very […]

  13. I couldn’t agree more. Well said. It’s infuriating to see the government step in and make sure someone else gets guaranteed what I have to work for. It’s not the equal protection of the law, and it’s just causing a disaster in inflation down the road. =/