The latest election year vote-buying legislation, if you’ve been following the news, is the Subprime Housing Bailout. This, we’ve been assured, is a humane and necessary act to prevent the “victims” of the crisis from losing their homes and being tossed into the street. If we take a closer look at the situation, it becomes obvious that the crisis is the result of greed and the victims are for the most part, as much to blame as the lenders. Bailing them out is a bad idea. 

Subprime lending is lending at a higher rate than the prime rate. This refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. This financing scheme can extend credit to borrowers that have problems with their credit rating. The rates are higher because the lender risks are higher.  

Caroline Baum of Blumberg.com wrote recently, “During the housing boom of the last five years, people with bad credit histories, many of whom lied about their income and nature of employment, got mortgage loans they weren't qualified for to buy houses they couldn't afford. Now that house prices have stopped rising, and the house can't be refinanced or sold at a profit, Congress wants the taxpayer to subsidize the mortgages so these folks can remain in their unaffordable houses.

The proposal to bail out subprime borrowers may seem humane, but it's wrong. The argument is that borrowers who signed up for subprime loans had no idea what they were doing. They didn't understand the loan documents, or didn't read them. Some borrowers may have been victims of predatory lenders (whose stocks have already surged on talk of a bailout). But many more borrowers simply gambled on risky loans in hopes of flipping property for big profits, or knowingly lied about their income just to get a bigger house. Don't reward these irresponsible people with property, paid for by you and me!” 

The bill, H.R. 3221, proposed by the Financial Services Committee Chairman Barney Frank, gives people who can’t pay their mortgages, 10% equity in their homes. That’s downright generous of old Barney. He’s that way you know, with taxpayer’s money. This scheme is unfair to people who are actually making their payments, and unfair to everyone except those who bought a house they couldn’t pay for, or bought one with the intention of flipping it for a hefty profit. 

Luke Mullins of U.S News and World Report wrote, “Critics of the plans argue that they would create a "moral hazard," by shielding borrowers from the consequences of their risk.”It just sort of adds fuel to the fire," says Rep. Ron Paul, a Texas Republican. "The assumption always is if [lenders and investors] get in trouble, they will be bailed out—and sure enough, that's what all these plans are." Wayne Brough, the chief economist at FreedomWorks, a fiscal conservative advocacy group, says that the bailout would penalize borrowers who did not obtain risky, exotic mortgages, by handing their tax dollars over to those who did…..”

This bailout is particularly unfair to renters because they have absolutely nothing to do with the issue. They are being asked—not really asked, but ordered to chip into the pot and give their money to get foolish borrowers and unsavory lenders out of a jam of their own making. 

This being an election year the congress will probably pass this odious piece of legislation because it makes them appear, at least in their own reflections, as caring and compassionate. Hopefully the Senate and the president will see it for what it is—an election year vote-buying giveaway gimmick. But I’m not betting on it. 

I bought my home in 1985 with an adjustable mortgage rate of 10%. I financed it for 15 years. It would have been nice if the government had come around and given me a free 120% equity in my place. But they didn’t and I paid off the loan in 2000. If I can do it, then so can everyone else.