While the Bush administration is talking up its mortgage rescue operations for delinquent borrowers, a New York Times article implies that the cash-strapped agency may not be able to pony up. For the first time in its history the Federal Housing Authority faces a deficit, primarily due to defaults on loans featuring seller-financed down payments.
These loans comprised about 35% of all FHA mortgages and are going sideways at a rate of 2 to 3 times that of other FHA mortgages. Either those with no stake of their own in the property are more willing to walk away from their obligations or the kind of people who can’t come up with any down payment at all are the same people who aren’t capable of repaying a mortgage.
Late-comers to the party include homeowners as much as 3 months’ behind on their mortgage payments — and FHA (another way of saying “taxpayers”) will be expected to bail them out. Even borrowers with negative equity may be eligible. Now, if buyers with no stake in their homes are repaying at such poor rates, what are those with negative equity going to do? And who should step up and pay for this mess? Apparently homeowners whose real estate investments went sour or those who blew their money on expensive cars and fun trips don’t mind asking fellow taxpayers (and their neighbors) to absorb the consequences of their decisions. Yuck.
So who deserves help, and who should be asked to provide it? Representative Ed Royce from California feels this bailout is a mistake. “We risk transferring this default risk right onto the backs of taxpayers,” he claims. Unpalatable, but what else can be done? Sometimes the best solution for the greatest number of people is not the one that stakes out the moral high ground. As US Representative Barney Frank says, “I want to help the least undeserving people around.”
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