Tuesday, August 07, 2007

rewarding irresponsibility

Hillary Clinton wants to bail out irresponsible borrowers with taxpayer money. She's proposing a billion dollars for state programs to bail out borrowers. Home owners get every advantage under the sun from tax deductible interest to capital gains exemptions but apparently that's not enough. Now Clinton is telling us people who bit off more than they can chew are supposed to get bailed out.

I have little sympathy for people who took adjustable teaser rate mortgages and can't pay them as they adjust. There's one sob story after another in the media about f*cked borrowers who claim to not have understood their mortgages. If people can not be bothered to read and understand the documents relating to the biggest transaction of their lives, it's going to go badly for them.

If the issue is that borrowers are not competent to understand loans, and if the government really wants to do something useful about that problem, mandate borrowers take a test before then can get a loan. I don't see anyway to protect borrows who can't pass a simple test about how loans works so perhaps they ought not to have one. The test I'm envisioning would be easy for 6th grader who can handle decimals. I do what percentage of the population would pass.

Clinton's plan to eliminate prepayment penalties is pointless. Many of those loans with pre-pay penalties have extremely low teaser rate or negative amortization. Teaser loans will just move to negative amortization which is no better for the borrower.

The only reform I see as valuable is standardized disclosure for basic mortgage term similar to credit cards. A nice little table outlining the terms. Even with this reform borrowers should still read everything but it will be more efficient world if one can see a mortgage is crap glancing at the first page.

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