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How to Qualify for Government's Subprime Bailout

Contributed by mm | September 11, 2007 6:39 PM PST

In a little noticed press release, the Bush administration announced its plan to create a new refinancing program managed by Federal Housing Administration (FHA) that will likely rescue 240,000 homeowners from the fate of foreclosure.

The new product, named FHASecure, does have some strict eligibility criteria, though. Homeowners must meet all five of the following condition to be eligible for an FHA bailout:

• A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset;
• Interest rates must have or will reset between June 2005 and December 2009;
• Three percent cash or equity in the home;
• A sustained history of employment; and
• Sufficient income to make the mortgage payment.

Obviously, this program is never designed to bail out everybody who willingly made the decision to buy a house he or she cannot afford. The requirement of 3% equity alone will probably shut the door for enough homeowners who are currently up-side-down in their mortgage balance in this nation-wide correction of housing price.

I'm a firm believer of free market, and don't really feel anybody warrants a federal rescue for the decisions he made when everything was brighter. Alex Merk said it better than I can in a SafeHaven article:

While it may politically be more attractive to "help" homeowners by allowing them to stay in their homes, it will do disservice to them. Capitalism has shown to work best when painful medicine is swallowed when necessary. The American dream is not to have the bank own your house and hold you hostage. The American dream encourages risk taking and allows for failure. Millions of jobs have been lost in many industries over the years as individuals, companies and entire industries have been allowed to fail; but, net, many more jobs have been created because America's reasonably free market approach that has encouraged the creation of new jobs. Subsidy of mistakes is the wrong path, whether it is for the steel industry, the cotton industry, or home borrowers who made wrong decisions.

In fact, this should extend to all lenders who created those exotic mortgage products, and all buyers of asset-based securities built on such products. If they lose money because of their prior profit-seeking actions, they should never count on the other taxpayers to make them whole when they lose the bet.

This Post Has Received 2 Comments. Share Your Opinions Too.


Zac Commented on September 11, 2007

Alex Merk said it perfectly!


Fred333 Commented on September 21, 2007

Very good point. It is not our fault that money was lost. It is their loss not ours.


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