Debt Free

How many homeowners stand to be bailed out by the federal government in the coming months? The FHA estimates it is going to help out about a quarter of a million mortgage holders in their hour of need. That’s great, but how many of them simply bought houses they couldn’t afford, using creative mortgage products, and then never refinanced into conventional mortgage products? The fact is that taxpayers are going to be on the hook for the bailout. Most of the people reading this probably didn’t get federal help in the form of taxpayer subsidies when they purchased their houses. I know I didn’t. I would have liked to have bought a nicer home too, but realized I couldn’t really afford it.

I was not looking to maximize the value of my house in the hope that its value would continue to appreciate, netting me a handsome profit in the future. This would occur after I had my house payments held artificially low through the use of an option ARM or interest only mortgage. It appears as though many homebuyers, in the interests of getting into the largest house they could manage, simply did so without any thought as to what would happen when their mortgage adjusted, or their balloon payment came due.

Now we’re in a situation where we have to have a massive, taxpayer subsidized rescue effort in order to keep the real estate market from being flooded with foreclosure properties. The Fed’s rumored to be dropping the federal funds rate from 5.25% to 5%, or possibly 4.75%. This would give some measure of protection for those who haven’t yet had their homes go into default because it would drop ARM payments. Maybe help for mortgage holders is on the way.