Concern Voiced Over Congressional Mortgage Bailout

The mortgage companies took reason and through it out the window. They told anyone who would listen that they would finance any borrower for any property without much friction. Bring us the deals was the cry from on high.

Now with the subprime loans bombing and Atl-A’s not far behind they are looking out for a Congressional bailout by the taxpayers. Well one Senator, Kit Bond, has a differing opinion. Here is Bonds money quotes, he makes some very good points.

BOND: While I would like to keep as many homeowners in their homes as possible, this strategy is more likely to result in a large bailout for lenders, while protecting a very limited number of borrowers.
In particular, [the Congressional Budget Office] estimates that under this program, quote, “Mortgage holders would have an incentive to direct their highest-risk loans to the program,” close quotes. For a modest write-off, lenders who were in a number of cases either fraudulent or negligent in their treatment of borrowers will be able to clear out many of their problem loans.
At the same time, CBO estimates that the cumulative default of the home program would be about 35 percent, meaning that one out of every three loans refinanced would fail. Creating a new federal program that takes on the worst of the worst subprime loans, which will hurt [the Federal Housing Administration] and ultimately the taxpayers, is extremely troubling. via National Review Online.

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