Question: When we bail out a mortgage lender

[Indenturedebtor]

How many home loans on average are paid off?

I mean these lenders are going under because they're left holding the bag for "bad" loans right? So we're paying off those bad loans. What happens to the houses they're getting ready to forclose on or have forclosed when Uncle Sam essentially ponies up the cash for them at market price plus? Don't they go back to the people who are now living out of their cars?

Or is it better if those folks pick themselves up by their bootstraps?

[Ian David]

1. Perhaps it WOULD be a better idea to pay-off the loans of the home-owners...

... instead of the debt of the mortgage companies.

"We have $2 billion dollars in bad mortgages!"
"Okay, let's pay-off those mortgages then with taxpayer dollars."
"No, we want to KEEP those mortgages... we just want the taxpayers to give us the money they're worth."

[sandnsea]

2. Of course it would be better

But people are so greedy that they get more upset about paying off their neighbor's loan than bailing out crooked mortgage companies.

[Indenturedebtor]

3. I don't think the "people" would be too butthurt about it

As it stands that money is going to be 50% sucked up into a golden parachute I bet. :grr:

[sandnsea]

5. People right on DU get upset about it

It was really ugly when this story first broke. Almost everybody was hating on those irresponsible and dishonest poor people who got loans they never should have had.

[sinkingfeeling]

4. I think you misunderstand what's happening. First, some of the lenders, such as

Fannie Mae and IndyMac aren't becoming insolvent strictly because they have 'foreclosed' on 'bad loans. Many people with adjustable mortgages just can't swing the jump in rates. There is no plan for Uncle Sam to 'buy' those foreclosures at any price. And Uncle Sam isn't paying off people's mortgages so they can regain their houses either.
What they might do is to infuse lenders with even more investment capital.

However, like the stock market and speculation on the commodity markets, when 'investors' believe that a lender is writing off too much in defaulted mortgages, they will take their money else where, dropping the stock value of Fannie Mae or causing a 'run' on a bank like IndyMac.

[sharesunited]

6. Lack of confidence is the problem.

Although foreclosures have increased, most loans are not in default and get repaid without a problem.

But fear causes mortgage resale markets to freeze up, and it was a run on the bank by depositors which caused the Bear Stearns and IndyMac collapses.

The same fear has caused the crisis at Fannie and Freddie because these entities can't raise new capital to keep the mortgage pool machinery running.

[MindPilot]

7. Because bailing out a mortgage company is "good business".

Whereas bailing out a homeowner who got screwed with a fraudulent loan, well that's socialism/welfare/communism and we can't have none of that.

See if we bailed out those homeowners, they would have no motivation to learn to mistrust mortgage brokers and then they would just go get another bogus loan; and then the government would have to bail out the mortgage companies all over again.

It's all about the family and values.

[Indenturedebtor]

8. I agree with you. Teach a man to fish and all that

At least this way we maintain the solvency of the bootstraps that people can use to hang themselves with!