Monday, October 20, 2008

To Bail Or Not To Bail, Is It A Question?

Lately, there’s been a lot of talk among the candidates about what THEY would do to resolve the housing foreclosure crisis. John McCain, in his second debate against Barack Obama, made the “off the cuff” statement that he would have the Government purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that would keep families in their homes. [The idea] is that by purchasing the existing, failing mortgages, the McCain plan would eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.” The plan would be available to mortgage holders who live in one home as their primary residence, and had good credit at the time of the loan. The mortgage would be a fixed-rate loan the homeowner could afford. McCain Proposes Bailout for Homeowners

It’s no doubt that African Americans households, have been particularly targeted by subprime mortgage lenders, are bearing the brunt of the housing crisis. Planetizen points out that, "predatory lenders have been steering blacks toward subprime loans for years, even when they could afford prime rates. I know this is true because my finance company tried it with me.

Interestingly, first-time homebuyers make up only a small percentage of subprime loans. According to Kai Wright, over half of all subprime loans were refinances of exiting home loans. This is a real tragedy because so much of black wealth is dependent on home equity. So as the housing market collapses, much of the trumpeted new wealth that has accumulated in black communities in recent decades will go with it.

Now, I’m not sure if McCain’s plan would work. In fact, I’m not sure that even if it could, I would want it to. After all, is it fair to bail out approximately 10 percent of the homeowners who got in over their heads? How would the Government distinguish between the folks who bought the property as an investment (i.e. to flip) and those who bought it to live in for the long term? Is it fair to give them a better interest rate than me, just because they couldn’t live up to their commitments? Is it fair that when values do go up, the folks who were “bailed-out” stand to make even more profit than me because they have less in the home? Or worse, they can undercut my price exactly because they have less to loose? And if my next door neighbor sales his or her home based on the new “value” which is lower than what we both originally paid, will that really help my home's value?

So yes, the crisis in the black community is real, and we need real solutions. However, every time I pay my house note and my taxes, I just can’t shake the feeling that if something like this is passed, it would be unfair to me and others like me who are struggling to hold on. I guess the old adage just keeps ringing in my head, “who’s going it bail me out?”