Bailout Underwater Mortgages No Way #2

Mr. Spetrino must have received other comments similar to my prior blog, judging from his most recent newsletter released yesterday.  The recent entry is a bit defensive and claiming moral high ground.  I’ll do some quotes and comments below.  Mr. Spentrino is limited to a very tight space to make his opinions known.  It would be good to have an interactive discussion with lots of thinking and patience between exchanges.

Fannie and Freddie should be required to waive risk-based financing fees and permit loan-to-value ratios over 125 percent, which is the current limit for making refinancing available.

It’s not clear to me why Fannie and Freddie should be required to take on high-risk loans to someone else’s benefit.  If the private owner is benefiting from the loan, I think it’s wrong to shift their risk onto me, as a tax payer.

Now many are opposed to this but there is no moral hazard here. All these people are not getting their principal reduced, and this program is only to help responsible homeowners that are current on their mortgages.

I think we define moral hazard differently.  If over-extending themselves into homes they couldn’t afford (NOT ignoring risk of loosing job, etc) was wrong to begin with and created all this trouble, and the current problem is that they’re in loans under water, it seems a hollow accomplishment to refinancing them into another loan that starts underwater by 125%?

Let’s be honest. A person who takes out a mortgage and pays their mortgage faithfully is doing nothing wrong. In my opinion, they are especially noble if the house is underwater. The least we can do for these well-intentioned folks is to let them benefit from the lower interest rates.

What the person is doing now is not being critiqued; nobody is saying they’re doing anything wrong.  However, doing nothing wrong is NOT sufficient reason to take financial burden and give it to everybody else for their benefit.  Here’s a dramatic overstatement, but you’ll get the point:  I haven’t killed anybody recently, so can the government please make my car payment for me?  The best we can do for these folks is to train them new ways of handling money in the future.  Rather than give them fish to eat, teach them to fish.  Applied in this scenario it would like like austerity for years, and then more responsible loan acquisition in future years.

Some people are opposed to this, but the U.S helps many countries and people who cannot help themselves. Why not help some well- intentioned person who stays current on their mortgage? The American homeowner is the backbone of our country.

If the goal is to subsidize every well-intentioned person, our government would go bankrupt helping everybody.  Well, hey.. look around — we ARE going bankrupt doing this!  Rather than helping someone because if they’re needy or well-intentioned, the real question is “Which needy person should I not help, because I can’t help everybody?”  When asked this way, it seems a lot more obvious that people who took on big loans to buy houses that were beyond their risk-adjusted capability, might not be the needy people we need to be helping.  Perhaps you believe that helping them will help everybody else by getting the economy out of a funk.  Well, in that case, it appears more like selfishness.

There are some parts of your jobs bill that are simply not worthwhile. But my suggestion on mortgage assistance will help millions of Americans stay current on their mortgages and the extra savings will put money into their pockets and help them pay down their principals faster or help fund future home improvements that would otherwise have not been affordable.

My opinion (which I’ve dropped multiple places and never really heard a good rebuttal for) is this:  If government benevolence comes with a name attached (Bob’s house or Sue’s food), then it is inappropriate redistribution of wealth which is specifically NOT constitutionally “for the common good”.  Government spending and effort should go only to things without people’s names attached (the street, public transportation).