Who pays for President Bush's mortgage bailout plan?

Question

When my wife and I bought our home eleven years ago, we had the option to go for a teaser rate or an adjustable mortgage rate. We opted to bite the bullet, get a fixed rate and pay a higher monthly payment for the next 30 years (11 years on, it seems small!). We paid a bit more, but we made what we thought was a sound economic choice.

Now the President is bailing out those individuals who chose for the cheaper option and now find themselves in financial crisis. Who do you think will ultimately will pay for this $350 billion shortfall? Not the mortgage companies. It will be the American taxpayer. In other words, people like my wife and I will end up paying for the greedy and short-sighted financial stupidity of others.

I don't recall getting a bailout for the large loss on the value of our investments when the stock market crashed in 2000. Why should we pay for this?

Acer, you are quite right about it being indirect, but we will nevertheless be subsidizing the cost of others financial choices. And your predictions are predicated on the assumption that all mortgage holders will go along with this. That has not been established. Indeed, it's likely that a deal like this will put a lot of them out of business.

Cheers.

Bostonian: I had not considered that particular "windfall", but probably there is a lot of truth to your observation. I guess that's what one calls a cruel financial reality.

Cheers.

Answer 1

Just to comment on acermill's good response, it's possible that tax revenues would be better than if all of those loans were foreclosed. At least there would be some taxable income instead of a huge glut of tax writeoffs for bad debts.

Answer 2

Right now the plan seems the mortage companies are going to cut their losses and eat a huge portion of the money.

However, yes they will pass a chunk of those lost funds down the line and probably end up increasing their rates, fees, and such to help make up what they can.

The fact is the lending companies lured hundreds of thousands of people that otherwise wouldn't get approved or had no way to pay for a house into buying one with these teaser rates, they offered them before but didn't advertise them as much as they have over the last 1-3 years. This is where the problem started.

Personally, I believe the lending companies saw the growth in the housing industry and cooked this whole plan up to pop the bubble that has been steadly growing over the last decade so they wouldn't have to worry about a crash 5-8 years from now when the bubble actually popped.

Answer 3

Well, actually, we're NOT paying for it directly. Those who made the loans and their investors will pay. Rates are to be frozen for five years, meaning the lenders don't get the option to raise those teaser rates for five years. They're simply going to collect less interest for the next five years than they had planned.

Of course, the lenders will report far less taxable income because of this reduced interest income, so we will be paying for it in terms of reduced income tax collections by the lenders. And,frankly, that's going to be less costly in terms of reduced tax revenues than it would be if all those homes were allowed to hit foreclosure. The profit levels from the banks would take an even harder hit if that occurred.

Answer 4

this might somewhat save the taxpayers money because of the fact the loans will persisted to gets a commission and not defaulted on. i'm nonetheless against it, it rewards undesirable habit and the stupid idiots that fell for the bait and turn. It additionally rewards the S&L's that made the undesirable loans which ought to be punished and allowed to fail, circulate below, bankrupt... yet I hate to work out people lose thier properties and be left to government information no count number how stupid they have been of their haste to purchase a house.

Answer 5

Well, it's not going to be corporations, oil companies, Haliburton, or those companies who are off shoring jobs......it's going to be the foolish American tax payer who consistently puts those who sell them out into office. People need to stop thinking in terms of Republican and Democrat and start thinking in terms of Americans.

Answer 6

China again, I suppose. Who knows? Whatever Bush thinks will give him or his party a leg up in the polls he will do and to hell with any long term consequences. As the Prez. publicly stated, what history has to say about him won't matter. He won't be here.

Answer 7

Right now, it looks like your 401K will pay for it....
That is who invests in these types of securities.