My husband and I are both under the belief that this bailout was not a good idea to begin with, at least not as it stands currently.  Why bailout the banks who screwed up and gave money to people who couldn’t afford it to begin with, especially since the bulk of those loans were the shady ARM loans?  We DID have one of those at one point.  We got out as soon as the flat rate expired and it became the beast that started asking for no less than $200 more a month out of our pockets – and was going to continue to go up.  Fortunately the market was still stable then, so we were able to do this easily.

How about instead, they make it a two-part deal – help the banks, and help the homeowners.  Both the homeowners who are facing foreclosure, and those who are hanging on by a thread – those who don’t have ARM’s, and are able to make their payments, but whose loan to value is upside down, making it impossible to sell without losing money, or to refinance to take advantage of the lower rates.

It would work like this – for the banks, they would be able to participate IF they agreed to help their customers in the above situations.  They would write off any difference in loan to value if it is upside down, up to a certain dollar amount so they aren’t losing too much – say, $100K.  And at the same time, would arrange to refinance that customer’s mortgage to the current low rates.  In return, if they help every single one of their customers in this fashion who are at risk, then the government does the bailout for 50-75% of that bank’s mortgages that have already failed and foreclosed.   The banks will still lose in the write offs on the existing loans, but they also stand to retain the customers they helped, since those customers will now be able to pay their mortgages instead of potentially foreclosing.

Also, if the customers are paying a lower interest rate on their mortgages, this will put more money back in their own pockets to spend on other things, which is part of the crunch everyone is facing now – they have to cut back on spending just to make their bills.

In a way this could also help those who rent.  Because even though you may be renting your home – the homeowner, the landlord, could be facing that very same issue, and where would that leave you if the landlord foreclosed?

Frankly, if the government wants to get the economy back on its feet, it needs to help those who do the spending – the people.  They already tried with the checks we got in late spring and summer, but come on – that is small potatoes compared to what is going on now.  If people are able to afford their mortgages, they’ll most likely stay in their homes, and continue to pay their more reasonable mortgages, and maybe even start spending a little more than what they may be doing now without the looming threat of foreclosure hanging over them.  Paid mortgages means the banks would not have so many foreclosures on their hands,  and the cutback in foreclosures will only help to boost the real estate market again, or at least stabilize it so home values aren’t hemorrhaging anymore.

Of course this all looks nice in theory, so who knows if it would really work in the real world.  But I don’t think it should just be the banks who are getting this reprieve.  If they hadn’t offered those shady ARM’s to every John, Dick and Harry who lined up for them – or dangled that carrot in front of those people (that is what was done to us, and we were in a pickle at the time, so we jumped on that ship) who were desperate and didn’t know any better, the financial market wouldn’t be in the position that it is in right now.

See, I don’t even blame either of the political parties for this one.  This falls squarely on the shoulders of the banks.  They dug their own graves.

Tags: Bailout, Banks, Money, Mortgage Rates, Mortgages