A key issue in the bailout discussion on Capitol Hill is whether there'll be any help for people holding "toxic mortgages."
MPR's Dan Olson and Sasha Aslanian have done a tremendous job chronicling the case of a woman in Minneapolis who is one of those people who politicians say needs help.
Faith Burns owes about $209,000 on a home that's now worth about $120,000. She refinanced several times, and took equity out of the home to finance a business boarding up vacant homes.
But what form the help for homeowners the Democrats say needs to be in the bailout bill would take isn't entirely clear. Especially since there's no agreement on what contribution homeowners made, if any, to the crisis. Sen. Charles Schumer, opening hearings today with Fed Chairman Ben Bernanke said the American people are "blameless" in this mess. Is that entirely true?
As the San Francisco Chronicle documents today, there's almost as much anger in parts of America at bailing out homeowners as there is bailing out the financial firms.
But there's a strong pushback against that sentiment on some parts of Main Street among citizens and legislators who think it's not fair for taxpayers to have to pay the tab for people who borrowed beyond their means.
"Nobody was ever forced to borrow money," said Patrick Killelea of Menlo Park, who runs the popular Patrick.net "housing bubble blog" Web site. "People who borrowed too much money made a mistake. If they can do that with impunity, they will keep on doing it."
The very end of Dan and Sasha's story this morning had -- I have to admit -- a troubling notation:
Burns lost the business she ran for ten years, boarding up abandoned properties for the City of Minneapolis. She's looking for a job, and she's planning on forming an investment club so she can play the stock market.
as my wife likes to say, "where's my reward for NOT making bad investment decisions?"
A major difficulty here is that "homeowners" holding "toxic mortgages" are far from a homogenous group.
There are those who can best identify with a family who would otherwise have to rent, but now can actually obtain equity via a 950 sqft home for ~100K.
There are those who can best identify with a family who can prudently afford, and whose needs are covered by, an 1800 sqft home for ~250K, but rather obtained a 3000 sqft one for ~400K (but now it's at 250K), because they now could.
There are those who can best identify with a family who have a 5000 sqft home, and buy another for ~800K, with th hopes of selling it a month later for ~1M, only to find out its value instead fell to 500K, and now have trouble with having both mortgages.
There are of course other possible canonical scenarios, and many who fit in the gray areas in between.
I do fear that while a one-size-fits-all solution is likely to be very problematic, it may not be worse than the attempts to cram solutions to all the above scenarios (and more?) into an omnibus solution.
I voted no, but its a qualified no. There are a minority of homeowners in toxic mortgages that are the victims of fraud, and they should have recourse to correct and/or undo wrongs done them. For the folks in toxic mortgages that brought it on themselves, I have less sympathy.
Joel's wife put it well.
I clicked yes. I don't really think it is fair that big companies might off the hook for their bad choices but the homeowners won't. I think there should be some help for homeowners, but it should be painful help, just like the help for the banks should be painful help.
If nothing else, helping homeowners with the toxic mortgages could help the taxpayers get a better return for buying the bad debt. The less of them that go into forclosure the better for us. (obviously this wouldn't be the case if we spend more bailing out the homeowners than we make from having less forclosures)
As someone that is responsible with money (if I don't say so myself) my first reaction is definately along the lines of Joel's wife's.