Federal Government Action to Prevent Foreclosures
By Kurt O'Keefe, Attorney at Law on Aug 31, 2007 in General Bankruptcy Information
Today’s Wall Street Journal reports that President Bush is proposing action to address the sub-prime crisis.
The good news is the administration is not planning to bail out the big boys and girls.
Capitalism and the free market are hurt, not helped, when the risk takers are saved from their mistakes. Our tax money should not be used to cover those who made bad bets.
The bad news, the relief, designed to prevent foreclosures, will be available to few homeowners, as the proposals would loosen FHA standards to modestly increase the category of mortgage loans the government can guarantee.
Very few of the more than two million homeowners facing upward rate adjustments as their Adjustable Rate Mortgages come off the introductory teaser rate in the next couple of years will qualify.
A better option is to change Chapter 13 of the bankruptcy code to allow homeowners to write down the mortgage balance to the value of their home and pay a fixed interest rate.
Government aid, always attractive to those who believe in government ability to solve problems, is inefficient.
If the government sets up some sort of bailout fund for homeowners, a new bureaucracy is required to administer the funds, set up qualification procedures, decide who does qualify, et cetera, all of which eats up the funds that were supposed to aid the homeowners in need.
People might even need lawyers to help them navigate the process.
The Chapter 13 equivalent to that bureaucracy is already in place, the Courts, the Trustees, the experienced debtor and creditor attorneys.
As for penalizing the wrongdoers, my faith is in the people, through the jury trial system, rather than the politicians, to mete out justice.
Holding the ratings agencies, and the others who knew, or should have known, that the emperor had no clothes, that the entire marketing, financing and securitization of the sub-prime mortgage loans was fraught with fraud, concealment and mis-representation, is better left to the people, who were the victims, rather than the politicians.
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