This week the news was filled with discussion about what to do with the foreclosure crisis. People's mortgages are underwater, meaning they owe more than their home is worth. Those who purchased responsibly, bought homes they could afford, and rejected the risk of a subprime loan are now being asked to bail out those who did the opposite.
The editor of Barron's magazine presented an argument 2 weeks ago in favor of bailing out those facing foreclosure by using tax dollars to pay down outstanding principal on threatened mortgages. The argument presented was that it was necessary for the greater good of the economy. However, he failed to show how this singular act would unfreeze the credit markets, get people interested in American automobiles again, or help our economy grow.
If we allow this fleecing of the responsible members of society to take place there will be no incentive to continue being prudent. Yet we must also acknowledge that there are many people who are in trouble with their mortgages through no fault of their own. They saved a down payment, and bought a reasonable home with a prudent mortgage, and are now having difficulty. They may have lost a job they thought they were secure in, or perhaps a calamitous event in their lives, such as a major illness, eliminated their ability to continue working in their chosen field.
I present 2 challenges to my fellow conservatives:
1. How do we help those who truly deserve it while weeding out those who do not?
2. How do we do it without hurting those who have lived responsibly?
When we try to answer these questions we must bear in mind that the liberal opposition is currently in power and that at best we can only hope to limit the downside in their proposals. Therefore, I propose the following and seek further comment from others:
A1. For people who seek help with their mortgages I propose that we reject outright the concept of something for nothing. If the government pays down some of the principal then the government should get an ownership stake in the home that they recoup on a percentage basis at the time of a future sale.
A2. To weed out those who would try to corrupt this process or take advantage of it, limits should be placed on the amount of aid available, and the government should have a lien on the house that supercedes all other claims, including that of the lending institution involved. If foreclosure ultimately happens anyway the government's stake should be recouped first, protecting the stake of responsible taxpayers. The government should limit the amount of aid available to no more than $50K or 10% of the outstanding principal per involved household, whichever is lower. Let's face it. Someone living in a home worth more than $500K has other alternatives they can employ to get themselves out of this h***. It should also be limited to US citizens and should only cover a primary residence.
My instinct is to reject government involvement at any level. However the practical side of me suggests that we will be better able influence policy if we present a willingness to discuss options that still protect our core beliefs. If believe these proposals, which are only my first thoughts on this subject I might add, will allow us to be engaged in the discussion and will emphasize our beliefs in individual responsibility and a government for all people, both taxpayers as well as those who need a hand. I look forward to comments.