Bailing borrowers out of trouble not government’s job

You just knew this was coming, given the Pavlovian way politicians react to headlines. The push is officially on for a legislative response to the subprime mortgage mess, led by a couple of congressman from Colorado.

In the first of what undoubtedly will be a wave of bills aimed at pandering to an emerging political constituency — the legions of Americans who are in over their heads — Reps. Ed Perlmutter and Mark Udall earlier this month won quick approval of a bill that will permit the Federal Housing Administration to guarantee the loans of borrowers who took the subprime plunge, only to get in trouble when the low introductory rates went up.

That’s tens of thousands, maybe hundreds of thousands, of people. And the potential exposure this will mean for taxpayers, who are themselves the guarantors of FHA’s “guarantees,” is huge.

As unfortunate as the present wave of foreclosures is, we think it would be wrong — and could drag taxpayers into an S&L-like quagmire — for government to intervene on behalf of subprime borrowers. These folks took a risk, by assuming larger mortgages than they could handle, based on the assumption that 1) the value of their home would continue to steeply appreciate, and 2) they would figure out how to pay the higher mortgages later. Most did so with eyes wide open. They succumbed to temptation and made a big mistake.

To turn these people into a new victim class ignores the role personal responsibility must play in a free society. It treats people like stupid children. And it exposes taxpayers (many of whom showed more restraint) to potentially huge liabilities.

“I know that people have been attracted to subprime mortgages but they have a lot of fine print,” said Udall, a Democrat. He says he was inspired to author the bill after an airline employee asked him for help. Instead of simply referring the person to a financial adviser, Udall decided to also help every subprime borrower in the land. What generosity — with other people’s money.

Other congressional bailout plans are even more stupid. One bill would allow homeowners to “tack on the delinquent payments onto the end of a loan, keeping the monthly payment the same but extending the term of the loan by a year or two,” according to one report. A year or two or three or four, perhaps, if enough delinquent payments pile up.

New York Sen. Charles Schumer wants to give $300 million to as yet un-named “nonprofits,” which will “advise families on how to refinance or renegotiate their mortgages.”

But a lack of money in the borrower’s bank account, not a lack of advice, is the problem. If Schumer is willing to spent $300 million on doling out advice, just imagine how much he’s willing to spend on the bailout.

The slippery slope potential is huge.

Is the government only going to intervene on behalf of at-risk borrowers, leaving those who have already been foreclosed-upon out in the cold? If such assistance is predicated on the idea that these people are all the hapless victims of unscrupulous lenders, aren’t the already-foreclosed-upon entitled to something, as well?

Will government aid be means tested, or also go to the couple earning $200,000 who bought a mansion during the boom times?

Couldn’t the creation of this new government safety net actually encourage delinquencies and defaults, once people know Uncle Sam will help them out of the jam? And what unfortunate new precedent might we be setting?

Will the government next come to the aid of those who get in over their heads with credit cards?

The wave of foreclosures is set to crest in the next 12 to 18 months — coinciding with the most heated stretch of the campaign season. Thus, politicians from both parties will be trying to outbid each other in a pander for the “foreclosure vote.” It has all the makings of the proverbial perfect storm, from the taxpayers’ point of view.

Unless we all raise a voice of protest, we’ll be manning the bucket brigade in the next great bailout.