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Rewarding Irresponsible Decisions with Endless Bailouts

By: Congressman Frank Lucas (Diary)  |  March 6th, 2009 at 09:38 AM  | 

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Yesterday, Congress passed H.R. 1106, the Helping Families Save Their Homes Act. Supporters hope this legislation will restore liquidity in the housing market and assist those homeowners who are in foreclosure. While this is a lofty goal, the bill just passed may not achieve it.

There are certain aspects of the bill that I can support. For example, permanently raising the FDIC insurance limit from $100,000 to $250,000 will provide additional assurances that our banks are safe, which will encourage investment.

On first blush, it may appear that giving judges this power will be helpful, however the long-term results are unsettling. The most troublesome provision grants bankruptcy judges the power to write down the principle on a mortgage while lowering the interest rate and extending the terms. Known as “cramdown,” this provision would cause mortgage interest rates for the average American consumer to skyrocket, making homeownership harder for all Americans. Compounding this problem, cramdowns will be costly to investors who have invested in mortgage-backed securities and will cause them to demand a higher interest rate on all further mortgages. The result is grim: in a time when we need to restore confidence and liquidity to the housing market, this bill will actually discourage investment and decrease lending, perpetuating the current freeze on credit.

I am sympathetic to those Americans who are struggling with their mortgage payments. However, approximately 90 percent of homeowners are paying their mortgages on time. The federal government cannot continue to bailout the irresponsible choices of a few at the cost of many. Americans are suffering from bailout fatigue. It is time for Congress to come up with serious solutions to the serious problems we are facing instead of continuing to throw money we don’t have at every problem that presents itself.

Frank Lucas represents Oklahoma’s Third Congressional District in the United States House of Representatives. For more Frankly Speakings, please visit Rep. Lucas’ Blog at http://www.house.gov/lucas/frankly-speaking/index.shtml.

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  • INC

    That’s the headline of this USA Today article. The statistics indicate the problem is extremely localized. 25% of foreclosures last year were in eight counties, yes, that’s 8! Once again, Congress is making a problem worse.

    More than half of the nation’s foreclosures last year took place in 35 counties, a sign that the financial crisis devastating the national economy may have begun with collapsing home loans in only a few corners of the country…

    A few of the 35 counties leading the foreclosure boom are in already-distressed areas around Detroit and Cleveland. But most are clustered in places such as Southern California, Las Vegas, Phoenix, South Florida and Washington, where home values shot up dramatically in the first half of the decade, then began to crumble…

    The worst-hit counties are home to about 20% of U.S. households, but accounted for just over 50% of the nation’s foreclosure actions last year, driving most of the national increase. And even among those places, a few stand out: Eight counties in Arizona, California, Florida and Nevada were the source of about a quarter of the nation’s foreclosures last year.

    There’s a national map indicating the foreclosure/county to give you the big picture.

    I know in Florida part of the problem was caused by overbuilding and flippers.

  • http://franklinslocke.blogspot.com/ franklinslocke

    First, this housing problem is mainly an 4 state problem, AZ, FL, CA, MI. So, why is all of the US helping for states? Then INC, mentions it is mainly 8 COUNTIES. See previous for my response to that!

    Next, reports show that 60% of the people who are going to get a bailout are going to be foreclosed on anyway. So, we are throwing money at them while it isn

  • izoneguy

    These are hard times and with Obamanomics it will only get worse.

    http://online.wsj.com/article/SB123629969453946717.html

    We have to let companies & people fail. That is the only way they will learn. Yes it is a tragedy that so many people bought homes that they could never afford. Much of this a direct result of government involvement. If America survives the Obama years we can all look back and see just how destructive the left is. They will have been responsible for much of the job loss and wealth destruction since the great depression. We can clearly see now that what is going on is not Bush’s fault. What is going on is how the markets are responding to Obamanomics. You think it is bad now – just wait. 4 years of pain as we watch a rookie president pushing a social agenda on America that most Americans do not want. We are seeing direct results of election outcomes. You can change the course of these events in 2010.

  • USNJIMRET

    with empowering ANYONE other the the principals to establish the value of property.
    “Adjusting” interest rates or length of a contract is one thing, and even THAT is a poor concept, but allowing an outside third party, judges, to reduce the principle owed on a home……a horribly bad idea.
    Just plain horrible.

  • ss396

    By not being able to trust the terms of the mortgage contract, the increase in mortgage risk is impossible to determine. So much for bringing stability and faith to the process. This is entirely backwards from what is supposed to be accomplished by this.

    But I am a lot more alarmed at the concept that you raise. Allowing these ‘third parties’ [judges] to rewrite the terms of a contract, without let or hindrance of the principals, undermines the entirety of civil law. This is purely government by whim. This form of government has a horrible, bloody history.

    Barack Obama and the 111th Congress will be known historically as the ones who destroyed America, the noblest experiment in governance ever conceived. They will destroy this country purely out of jealousy and hatred. They cannot build; they can only destroy. God help us, that we have allowed petulant, spoiled children to be the holders of political power in this nation.