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Today the Bush Administration announced a plan to help bail out homeowners who are currently at risk for foreclosure.  The article caught my eye both because I'm a financial planner AND because I'm in the process of refinancing our mortgage to help make it more affordable for us.  We are currently paying almost 50% more in interest on our second mortgage than was originally quoted to us because the market on subprime mortgages had a major downturn the week we purchased our house.  We've been slugging along paying over ten percent on our second mortgage just because the market was so unfavorable at that time.  Our timing was horrible and we felt like we deserved a much better mortgage rate given our credit scores and excellent borrowing history.

Anyway, this might come as a shock, but I am totally against the federal government getting involved in the financial markets.  I know there are lots and lots of people currently unable to pay their mortgages because the market has softened and their variable rate mortgages have adjusted unfavorably, but I don't think a bail out is in order.

First of all, this is easy to forget, but home ownership is really more of a privilege than a right.  It's something you achieve through hard work, dedication and good planning.  It's not a given and it's certainly not a necessity.  I understand that there are plenty of people out there who've lost a job or have medical bills or other perfectly legitimate reasons why they can't pay their mortgages, but I fear that many of the people who are in foreclosure simply bit off more than they could chew.  Too many people bought more home than they could actually afford.  Basically, they made poor financial choices and now the government, in cahoots with the big banks, has decided to give them charity.  For something that's a privilege in the first place.  This bothers my inner libertarian.  

As much as this seems like it's all about bailing out the poor homeowners who can't pay their mortgages, it's not that simple.  This bailout happens to ALSO bail out the banks.  Instead of having to foreclose on thousands of homes that aren't even worth the amounts owed on the mortgages, the banks get to renegotiate.  This saves THEIR butts even more than it saves the homeowners.  I think this is probably what bothers me the most - the idea that banks are out there giving zero-down financing to people who they very well know can't afford it.  They undertook a certain degree of risk and now that risk is biting back and instead of changing their ways, they're getting bailed out.  The best thing that can happen to the banks is that they lose some profit and change their lending policies to make them more mutually beneficial to both the lender and the lendee.