Tuesday, January 22, 2008

UPDATED - County mortgage bail out?

See update at the bottom of the post.

Walter Williams, the John M. Olin Distinguished Professor of Economics at George Mason University, is one of my favorite columnists. He and Thomas Sowell have a way of making economic information seem simple - and understandable.

As I was reading his column on the subprime bailout, I couldn't help but think that our three County Commissioners should have a conversation with him.

When the commissioners meet today in their regularly-scheduled board meeting, they will approve a bail-out plan for local residents facing foreclosures, which includes a payment of up to $5,000 to help with their mortgages.

As Williams points out, President Bush's plan to 'help' people facing foreclosure "is a wealth transfer from creditworthy people and taxpayers to those who made ill-advised credit decisions, and that includes banks as well as borrowers. According to Temple University professor of economics William Dunkelberg, 96 percent of all mortgages are being paid on time. Thirty percent of American homeowners have no mortgage. Delinquency rates were higher in the 1980s than they are today. Only 2 to 3 percent of all mortgages are in foreclosure. The government bailout helps a few people at a huge cost to the rest of the economy.

Government policy got us into the subprime mess and government's measure to fix the mess is going to create more mess."


The Commissioners plan to use TANF monies for their local bail-out plan. TANF (Temporary Assistance to Needy Families) rules are extremely lenient, allowing local governments huge leeway in how they choose to allocate the funds. So, while we can debate the logic of such assistance, it is allowable. In this case, though, the eligibility will be up to 300% of poverty level (higher than for some other assistance which is capped at 200% or 250%), which is about $57,000 for a family of four. And TANF only applies to families, meaning that you must have a minor child residing in the household.

(Aside - in constantly increasing the eligibility requirements, government officials do two things:
1) they increase the numbers of individuals actually participating, earning them votes from a wider group and making more people dependent upon government for such 'help.'
2) they use more of their allocation which, if not spent, is returned to the state or federal governments for redistribution - meaning that they'll continue to qualify for the same or more funds in the future due to total use of current monies. The 'use it or lose it' mentality is what contributes to the never-ending government program and the lack of any return of unspent funds to the taxpayer who provided such funds in the first place.)

The way TANF works, the Commissioners will probably take proposals from local agencies who will then screen/qualify applicants and provide the actual assistance. Participating agencies will be allowed to take a portion of the funds for their administrative costs. As part of the requirements, the Commissioners will mandate recipient attendance at comprehensive credit counseling and financial literacy courses to "ensure their long-term financial health." (as if any government program or training class could 'ensure' such a thing...)

TANF funds come from the federal government, through the state, down to the counties. But it's not some nebulous account earning monies that are then distributed around the country. TANF comes from the taxes we pay, with both the feds and the states taking a share of it off the top to 'administer.'

And all of us who also face tight budgets, but who made good financial decisions, will be paying that $5,000 the others will receive.

As Williams says, this is nothing but "a wealth transfer from creditworthy people and taxpayers to those who made ill-advised credit decisions, and that includes banks as well as borrowers."

And I, for one, am tired of it.

This isn't about helping those who are less fortunate. This is about making them face the outcomes of their own decisions. When you make a bad decision, you learn to not make a similar bad decision by actually having to suffer the consequences. Sometimes, those consequences can be pretty severe - like losing your home. In many instances, this is the best way for an individual to learn a lesson - and the most memorable lessons are primarily those that came as a result of severe consequences.

And how, exactly, will a $5,000 gift of my tax dollars actually help a family facing foreclosure? It won't - all it will do is prolong the inevitable. When a family cannot afford the house they are in, giving them a gift of other people's money will only allow them to stay in the bad situation for a bit longer. After utilizing the $5,000, they will still be in a house they cannot afford and some will then expect that future 'bail outs' will be available when the situation again results in the potential loss of their home.

Before everyone starts off on evil predatory lenders, remember that the government is the one who mandated that banks give out loans to individuals of questionable financial means in the first place. And as this New York Times story details, predatory borrowing may have been the bigger problem.

"As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.

In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years."

And this fact brings up the next concern - how, exactly, will the rules of this new handout be written? Will the focus be on finding ways to keep people comfortable in their inability to make their financial obligations? Or will the effort be to get such eligible families into living accommodations that they can actually afford - even if it means an apartment instead of their current home?

The current plan for this assistance will include mandatory credit counselling and financial literacy courses - which is a good thing, even if it is after the fact. I just wish it wasn't accompanied by the carrot of up to $5,000 cash. But that's how government gets individuals into such 'training' - by offering them cash in order to 'learn' what they should already know.

(I once had a county employee tell me that if we didn't offer people money to participate, no one would actually be in a certain program. My response, of course, was that this was evidence we didn't 'need' the program in the first place and maybe we could then give the funds for it back to the taxpayers. My suggestion was seen as sacrilege and was immediately dismissed as terrible for the individuals because, whether they knew it or not, they did 'need' this government assistance.)

In the end, I think many Lucas County residents will feel like I do ... if my tax dollars are going to go toward anyone's mortgage, it should be my own.

UPDATE: From the actual resolution passed by the Commissioners today:

Lucas County Department of Job and Family Services is seeking provider(s) to provide a full range of housing assistance to TANF/PRC (Temporary Assistance to Needy Families/Prevention, Retention and Contingency)-eligible Lucas County homeowners by way of a multi-faceted approach, including, but not limited to:

* Client education and training services
* Counseling on loan payment delinquency and mortgage foreclosure
* Client advocacy and one-time cash assistance
* Case management and follow-up services

Services are to be provided from approximately April 1, 2008 through June 30, 2008 with a twelve month renewal option of July 1, 2008 through June 30, 2009.


Can someone please explain to me why this area needs 15 months of such 'service'??? Seems to me that the 'crisis' will be over way before then! And if I understood correctly, the cost of this is about a half a million dollars!

3 comments:

Hooda Thunkit said...

Maggie,

"In the end, I think many Lucas County residents will feel like I do ... if my tax dollars are going to go toward anyone's mortgage, it should be my own."

Exactly!

But then, I am fortunate, having stumbled in the late 70s, I learned my lessons well and because I learned to curb my wants, I remain debt-free today.

It is a good feeling, but it is not without its scars.

I live without many of the latest fad items others seem incapable of living without, but the lack of outstanding debts is my reward.

The fad stuff?

Didn't really want any of it to begin with; the debt-free life makes up for not having all of the "latest and greatest" toys.

Roo said...

Maggie,

All this plan does is attempt to atone for a lack of personal responsibility. Part of that responsibility is to admit that perhaps you should not have entered into a mortgage you could not afford. But that's a totally separate rant, for sure.

Lenders did lend money to people that were not creditworthy. No doubt. But they did so at the behest of the government in an effort to grant (keep that term in mind) the American Dream to all.

Years ago that dream was earned - not granted - and people seldom defaulted.

It's a crazy world we live in. I have 5 mortgages and don't really feel like paying anyone elses. I make my payments first - then live on what's left. Is that such a difficult concept???

Right Wing Toledo said...

Maggie,

Is anyone really surprised? The huge push from the left has been asking the responsible to pay for the mistakes of the irresponsible for ages - from the bailout, expanded welfare, government subsity of abortions, to the Chrysler bailout.

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