Republican senator wants lowest income renters to pay for mortgage bailout

The Republican ranking member from the Senate Banking, Housing, and Urban Affairs Committee wants to pay for Chris Dodd's mortgage bailout program out of a trust fund for housing the poorest of the poor, according to the National Coalition for Low Income Housing:

WASHINGTON, DC - Responding to pressure from Ranking Member Senator Richard Shelby (R-AL), the Senate Banking, Housing, and Urban Affairs Committee appears to be on the verge of diverting funds designated for a housing trust fund for housing for the poorest Americans to pay for Committee Chairman Christopher Dodd’s (D-CT) new program to refinance homeowners facing foreclosure.

In his bill “The Federal Housing Finance Regulatory Reform Act of 2008,” Chairman Dodd proposes to allow the Federal Housing Administration to insure refinanced mortgages of homeowners who face foreclosure. The Congressional Budget Office estimates this new program creates a potential liability for the federal government of $1.7 billion.

Reports are that Senator Shelby will only agree to the new FHA program if it is paid for by non-taxpayer funds. Senator Dodd’s bill also creates a housing trust fund with resources from Fannie Mae and Freddie Mac to build or preserve rental housing for extremely low and very low income people. Senator Shelby wants those funds to be used to pay for the new FHA program instead. [NCLIH]

Bailing out mortgage-holders sounds progressive until you realize that you're also bailing out the irresponsible lenders who caused the problem in the first place. They're just going to do it again, knowing that the state will pay them, even if their customers can't.

"Too big to fail" is a nice way of saying "corporate welfare."

Taking the money from the poorest of the poor to bail out sub-prime sharks and their customers is just perverse.

Comments

[Eric Jaffa]

"Ranking Member" is a euphemism for "Ranking Minority Member."

In January, Senator Richard Shelby (R-AL), will be part of a smaller minority.

[shrimplate]

Typical neo-conservative class warfare. They'd steal candy from a baby.

[parse]

Bailing out mortgage-holders sounds progressive until you realize that you're also bailing out the irresponsible lenders who caused the problem in the first place. They're just going to do it again, knowing that the state will pay them, even if their customers can't.

Does this mean you oppose bailing out mortgage-holders?

[Lindsay Beyerstein]

Parse, I'm still undecided. If it's the only way to ward off a massive recession, then I guess a bailout is a deeply unpalatable necessity. On the other hand, I want to see the market punish irresponsible lenders.

The mortgage-backed security craze spurred the industry to push mortgages and homes on people who simply can't afford them. Significant numbers of people were lent huge sums based on their credit scores alone, without regard for income or assets. Unscrupulous mortgage brokers frequently gamed the system by teaching their clients tricks to appear more credit-worthy on paper without a commensurate improvement their real financial position--i.e., by borrowing money from family to pay off debts the credit bureau sees.

During the bubble lenders disregarded old rules about lending to people with insecure or part-time jobs. A lot of people were struggling even when the economy was good. I'd hate to see the government bail out the lenders only to see a large chunk of homeowners lose their homes anyway.

As the Shelby gambit illustrates, the money to bail out these mortgages is going to have to come from somewhere. I strenuously object to financing the bailout of homeowners by cutting programs for the poorest renters. Obviously, there are lots of other places in the budget that we could trim in order to afford the bailout that wouldn't be so regressive.

Whatever we decide to do about individual mortgages, there must also be sweeping financial reforms to help prevent future debacles of this sort.

[mudkitty]

Bottom feeding is the primary goal of The Shock Doctrine.

[The Phantom]

A significant portion of the "mortgage crisis" rests with speculators, esp in hot markets like Las Vegas or south Florida. I'd tend to oppose any aid to speculative investors--they're probably not victims, just people who overreached.

If anyone gets a hand, it should be those who are in owner-occupied units.

[parse]

If it's the only way to ward off a massive recession, then I guess a bailout is a deeply unpalatable necessity.

That seems to be a nice way of saying "corporate welfare" as well. Isn't the argument behind "too big to fail" that the failure would have adverse effects on the economy as a whole?

The mortgage-backed security craze spurred the industry to push mortgages and homes on people who simply can't afford them.

If this is true, doesn't this mean if these people lose their homes, they are only losing something they simply can't afford?

[Lindsay Beyerstein]

Yes, any kind of bailout would be corporate welfare. No question.

It's not fair to bail out irresponsible lenders. On the other hand, it would be at least as unfair to let the economy slip into a preventable recession just to discipline lenders.

The mortgage-backed security craze spurred the industry to push mortgages and homes on people who simply can't afford them.

If this is true, doesn't this mean if these people lose their homes, they are only losing something they simply can't afford?

In some cases, yes--which is an argument against certain types of bailout plans. If consumers got saddled with unsupportable amounts of debt, there needs to be a market correction. Spending a lot of money to refinance those desperate mortgages might just be delaying the inevitable and paying off bad lenders in the process.

[The Phantom]

Corporate welfare is not always bad. Sometimes its a win/win.

The federal govt bailed out Chrysler in 1983, got paid back early and with interest, and as a result the jobs of many thousands of blue collar workers have continued for 25 years.

All's obviously not been well since then with them, but that's another issue.