Should the U.S. Government Bail Out Homeowners?
We all know that many U.S. homeowners with sub-prime mortgages have gone into foreclosure or are at serious risk of going into foreclosure. This crisis is so widespread that many lenders, including one of the largest mortgage lenders: Countrywide Financial, have taken a serious financial hit due to their sub-prime mortgage loans. Some private banks have come to the rescue, like Bank of America’s assistance to Countrywide but the U.S. Government has also stepped in to pressure many sub-prime lenders to restructure their adjustable rate loans to sub-prime lenders.
Many are blaming the lenders for making inappropriate loans to sub-prime lenders that allowed them to receive an adjustable rate mortgage with little or no down payment. These borrowers could afford to make payments on the 100% loan-to-value ARMs with the low interest rates that were available at the time but after just a moderate increase in interest rates, these borrowers have seen their monthly payments increase significantly. While the lenders should be held responsible for the financial impact to their company of making loans that were sure to have interest rate increases and higher monthly payments to borrowers who could barely afford the loan at the initial interest rates, the borrowers should also be responsible for accepting a loan they surely wouldn’t be able to afford in the near future.
This sub-prime mortgage crisis is also driving up housing rental prices across the country as many sub-prime lenders who probably should have been renting in the first place have lost their homes and the demand for rental housing has increased. Investment/Rental property owners are enjoying the market price increases due to this activity as many owners are receiving many more inquiries from their condo and home rental advertising.
The U.S. Government is bailing out many of these borrowers for poor financial decisions and eliminating the personal consequences for these borrowers. While the impact of this activity to the U.S. economy is undeniable, it is inappropriate for the Federal Government to be bailing out individual borrowers who made poor personal financial decisions. These borrowers should not be able to keep a home that they cannot afford to pay for at current interest rates just because their defaults will have a negative impact on the economy. The lenders and borrowers made bad decisions that will affect us all, but we must endure that consequence as a byproduct of our free market economy.