Federal government bail out of mortgage market seems more likely

A federal bailout of the subprime mortgage mess appears more likely. Democratic senators, including those on the banking committee are proposing hundreds of millions of dollars towards stemming the rising tide of foreclosures across America, particularly in the subprime market.

At a press conference held to present the findings, Sen. Charles Schumer (D-N.Y.) said the U.S. government should offer hundreds of millions of dollars to help troubled borrowers avoid losing their homes.

"The federal government can send in an infusion of (money) to prevent foreclosure," said Schumer.

Schumer was joined by Democratic senators Sen. Robert Menendez (D-N.J.) and Sen. Sherrod Brown (D-Ohio).

"All three of us are on the banking committee … We will be proposing significant amounts of dollars to go here and do this. Could not tell you how much, but in the hundreds of millions of dollars for sure. Maybe more than that," Schumer said.

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The Congressional report Wednesday estimates the cost of each foreclosure â?? to homeowners, loan servicers, lenders, and local governments â?? at up to $80,000. The report said that, by spending money now, the federal government can prevent wider economic impact form an increase in foreclosures.

"We have to move quickly because the trend line goes way up in terms of the number of foreclosures," said Schumer.

While I certainly sympathize with the families that will lose their homes it is irresponsible of the federal government to use tax payer dollars (indeed dollars of people who have properly managed their money and mortgage payments) to bail out people who have made unwise borrowing choices. A federal bailout will only encourage a future recurrence of the type of reckless lending and borrowing that has put the market in this current position.

People that were bilked out of their home by unscrupulous mortgage lenders have an appropriate avenue of recourse via the predatory lending laws and state and federal courts and existing regulatory agencies. Those that have merit and were the victim of fraud and other bad business practices will receive restitution. Those cases that amount to poor decision making will not.

Just because your home stops working like an ATM doesn’t mean its time for the federal government to step in and offer more money. Most lenders are working overtime to adjust current mortgage terms to keep borrowers in their homes. The government can help by providing education on these options to homeowners rather than handouts.

By not overreacting and not legislating our way out of the mess the federal government could set a profound precedent that would protect our country from this type of excess in the future. By promoting the existing infrastructure available to mitigate these conditions the government can keep borrowers in their homes, show respect to those that properly managed their money by not squandering their tax dollars, and send a strong message to other industries that bailouts are not guaranteed.