Should The Government Save Folks Facing Foreclosures?

In January alone, more than 45,000 American families lost their homes to foreclosure. That number sounds high, right? January 2007 saw about 20,000 less foreclosures. The marketing was sliding then, but wasn’t nearly hitting 45,000 families across the country. Is it in the governments duty to help these folks out?

So foreclosures are on the rise, and the housing marketing is certainly in the buyers favor, but it seems like the talk of the town (of towns across the nation) are centered around whether the U.S. government should be held accountable for the foreclosures they’re seeing. Is it government’s responsibility to save people from their own financial missteps?

Obviously I sit in the personal finance realm, and we around here often think that EVERYONE is responsible for their own decisions. This includes the decision to take out a 100% loan at a 9% ARM on your house that just jumped to 13%, etc.

So many families are seeing this and all across the Personal Finance realm people are saying it is their own faults that they’re in this debt mess and that they should dig themselves out without the governments assistance.

Yes, we think like that, and we think that we’re so much better at managing our finances, investing our money, having financial education, and saving for retirement, but if the government DOESN’T help them out, it affects us as well.

  • It affects us when our house values go down because we’ve got foreclosures in our neighborhood.
  • If affects us when the trees and bushes aren’t maintained, the potholes get bigger, and the public works see less face time.
  • It affects us when people get in the mindset that we’re falling too fast into recession and stop spending money at our stores.
  • If affects us when our family members are involved in the foreclosure mess. They’re family, but we also want to pull the “I told you so” trigger also.

So yes, it most certainly does affect us and our decision making. I’d say don’t be so quick to judge the government on this one yet. They’re taking in the whole perspective into account. Yes it is lowering the value of the dollar. Yes it is bringing to light the bad mortgage brokers trying to strike while the housing market was hot, but some of these places are being forced to buy back their poor choice loans.

The government can make some bad decisions yes, but playing the devils advocate here, they’re not COMPLETELY worthless. Don’t get me wrong; federally subsidized loans are partly why we have a subprime mortgage crisis in the first place. They have a decent idea in trying to save these foreclosures, in looking at the big picture, they just need to be careful not to slap us folks that have been GOOD with their financials.

Should the “Darwinism” continue and the government stay out of it? Well, it is a bit too late for that now. They in it up to their necks right now, so we need to decide where it is going to go now. Do we slap the mortgage companies and make them take the loans back? Well, in doing that “Robin Hood” approach, you’re now just moving the crisis to the mortgage companies. They have families involved also; sticking it back on them is just going to close shops and put people on the streets there.

Yes, I think it was a bad idea by the individuals that made the decision in the first place, and yes they should have known what they were getting in to, but we’re playing with the cards that have been dealt. We can either piss and moan about it, or look at the entire picture and decide what is best for America as a whole.

I’m not a political blog, but am certainly curious to hear how each of the candidates are proposing to resolve this issue…

Photo by: Mike Licht

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  • I typically lean towards the side of minimizing government intervention. That being said, I do recognize the point you made that we are in the soup now, so it may require some policy shift to make up for the collective ignorance of some out there who borrowed up to their eyeballs in bad loans. I am not sure something as drastic as a freeze on mortgages is prudent, but I’m not sure there are any quick fixes either.

    Frugal Dad’s last blog post..Frugal Family Activities for a Spring Break Vacation at Home

  • How would bailing out “homeowners” changes our incentives moving forward? I think it’s fair to say that people would behave even more irresponsibly moving forward if they can count on the government bailing them out.

    Is that what we want?

    Aaron Stroud’s last blog post..Time to buy a house?

  • More than anything it’s just annoying to watch irresponsible people get saved. I want a break on my interest rate too! But I don’t get one because I got a fixed rate mortgage with a payment I can afford.

    But on the other hand, I don’t want my husband to get laid off because the economy is in the toilet due to all these bad loans. “They” need to do something.

    Mom@wide open wallet’s last blog post..Stretching vs. Saving

  • PT

    Yes, let’s bail them all out. Then let’s move to “victims” of:

    Pay Day Loans
    High Interest Credit Cards and other Loans

    or “victims” who:

    invest only in single stocks
    borrow from their 401k
    spend more than they make

    We all pay the stupid tax sometime in our lives…these people need to own up or go rent. Maybe I don’t understand all the angles of this, but it seems unjust to bail these people out with my hard-earned money.

    PT’s last blog post..5 Crazy Tax Write-Offs

  • They absolutely should not be bailed out….the idea of personal responsibility seems to have been lost somewhere in the past decade.

    Jesse’s last blog post..xm sirius merger – xm sirius merger approved and Stock implications

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  • @FrugalDad – I totally agree with you that there aren’t any “quick fixes” to this. We either ride it out, or let it fall. The 300,000 people in trouble certainly are the minority, but that’s 300,000 votes to the politician that can figure it out… on the other hand that is 2.7MIL to the person that can not screw over the rest of the population… 🙂

    @Aaron – Nobody WANTS to help them out; we’re at a point now though where we’ve already committed the crime of STARTING to help; the question of the day is “what do we do now”?

    @Mom – no kidding. I can’t stand the irresponsibilty that we’re showing here either; and the point about your husband hits home for the 300,000 people that would be hurt by the banks and lenders going under… Who do we screw? 🙂

    @PT – nope, you’re seeing it clearly! 🙂 That’s just it, I hate to do it too; and maybe it is time for a bite of humble pie for each of them, but unfortunately, the government has decided they want a bite of it too.

    @Jesse – Agreed, what would our parents have done 10, 20, or 30 years ago? We just didn’t see this because there wasn’t the ability to loan and borrow like there is/was today.

    All in all, I am always a person that is willing to help when I can, but the point to the whole debate is that there is NO WAY that the government can make 100% of the people happy. Someone is going to get burned, it all comes down to who they’re going to decide gets burned the least…

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  • Yes I understand that if someone forecloses it affects their neighbors but it’s still their own fault (generally). I tend to favor as little government influence and interference as possible. They generally muck things up rather than helping.

    castocreations’s last blog post..Sleepy Sunday

  • SFNewYorker

    I don’t think the majority of people who are losing their homes are greedy and/or stupidly careless. Most were led down the garden path by lenders or mortgage brokers who said “trust me” when the borrowers asked questions or expressed doubts. However, It seems the present administration would prefer to bail out the lenders [who are the greediest in my book] and not the hapless homeowners.

    Congrats to Mom who was fortunate enough and probably smart enough to get a fixed-rate mortgage that she is paying on time every month. However, when our hapless neighbors lose their homes to foreclosure, every nearby homeowner also loses because the value of his or her home goes down and could even eat up all of their equity.
    So, what’s the solution? My suggestion is to enact a federal usury law. I think there should be a cap on interest rates for all commercial loans — mortgages, credit cards, payday loans, etc. And maybe noncommercial ones as well. Most states have usury laws. In California, it is 10%. In New York, it is 16% But in 1980, Congress passed a law exempting national banks from the state limits. The rest of us have to follow the state limits, so keep that in mind if you sell your home and carry back a second mortgage.
    I would like to hear what others think about this and, if they like the idea of a cap on interest rates, what they think the cap [or caps] should be.

    If you want to check out your state’s usury limits, go to
    http://www.lectlaw.com/files/ban02.htm

  • I don’t think the gov’t should enact a cap. Their influence in free markets is already too strong and should be less.

    If people were “tricked” into bad loans then maybe they should have educated themselves ahead of time. Hubby and I refused a non-fixed mortgage. I only wanted fixed. I didn’t care if it “could” be a lower rate at some times – it could also go up. And so we turned it down. We knew better. If people bought houses too big for their budgets then it is their own piss poor planning. And I say Tough Noogies. Keep the gov’t out of it.

    castocreations’s last blog post..Poor Little Girl

  • Foreclose, Forgive and Forge On. That’s the title of one of my blogs. Basically get it over with, don’t ding the credit reports of the poor bastards that got bit by all of this and let’s get on with things. Lots more on my website about this.

  • Brian

    I’m a little concerned that most of the posts here only take into account the financial perspective. In America, many people saw what their parents went without and did not want to have that for themselves or their kids. Hank has discussed this often in his posts, and I’m sure he’s not alone. People do this not in a greedy way but just in a seeking a higher standard than they were given way.

    In addition, homes in America are our way of showing accomplishment. It’s all well and good that someone saves $1,000,000 for their retirement. Most people take much more pride in the fact that they own their own home. It is the American dream and it should be something many people can achieve. But our America is changing. Jobs and careers are different than they were. I hope people realize that this is much more than just financial irresponsibility or people being tricked or misled. It has to do with fundamental changes in the structure of the American economy and American life.

    Let me end with this question. For most people, what is the most stabilizing thing in their life? (Think of what people might have answered 10 years ago). As much as we might want to say family, I think the home has really helped promote stability in most American families in the second half of the 20th century. If so, isn’t that something that the government should try to protect?

  • @Brain – good look at the other side of the coin. A lot of opinions are based solely on the PERSONAL finance ideas that we’ve got specific to blogs like this, but it does bring up another interesting perspective, thanks!

  • Great comment Brian! Foreclosures have effects on peoples’ pride and feelings as well! Keeping a positive and assertive personality is key when facing foreclosures. Not only do you need a financial game plan, but you need the right attitude as well.

    Foreclosure Doctor Online’s last blog post..Do You Know The Six Best Kept Secrets To Selling Your House Fast?

  • David

    It’s really sad that this much talk wasn’t around when the government stepped in to bail out Bear Stearns. For that matter look back in the last 80 years how many companies and corporations our government saved or bailed out. Many because of financial mismanagement or fraud. Does this not piss you off, the fact that big corp. can make mistakes or commit fraud – when in trouble our tax dollars keeps them in their big mansions, and lavished vehicles.

    Yet we want to worry and stop a fix for the common homeowner our neighbor. I personally saw how lenders, mortgage brokers, appraisers, even realtors that would cut corners or mislead to close a transaction. Greed — rich become richer and those that tried to simply buy a home for their family where they were set up to fail in the long run. Accept it wasn’t a long run. It was very short, ultimately and unexpectedly affecting big business- which by the way our tax dollars have already begun to save.

    So its good to see that the big corp. guy (mostly responsible for the mess) gets to keep his office, his big home and is still able to tell you to get him his coffee. I don’t believe that the affected homeowner is looking for a handout, and the government shouldn’t have to use tax dollars to correct the problem. The corp. layer responsible for the mess should fix it. If they go under then that’s too bad. At the very least and most importantly tax dollars are not used. Nobody gets bailed out. At the end, the homeowner loses equity/value and some corporations might not make as much as they projected- oh well. So the big guy eats meals out 1 or 2 times less a month.

    I’d rather help my neighbor than worry about whether or not Mr. Big Guy is able drive the newly released sport car.

    Read this… http://www.nolanchart.com/article4263.html

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