Clark Howard's Tips

Mortgage bailout proposal to help banks, not homeowners

June 25, 2008

Here's a story that's disturbed Clark so much it required both a Clarkonomics sounder and a rip-off alert one!

During the coming weeks, you're going to be hearing about how Congress is rescuing the American homeowner with a foreclosure bailout. This is natural rhetoric for an election year. But Clark wants you to know the real story.

CLARK'S TIP TOPICS Consumer Tips Managing Money Banks & Credit Cards Technology Health & Healthcare Car Costs Homes Phones & Utilities Small Business Travel & Leisure Find more consumer advice in Clark Howard's book, "Get Clark Smart"

First off, Countrywide is being sued in Illinois and California for conspiracy to defraud would-be homeowners. They allegedly issued loans when they knew there was no way they'd ever be paid off. Countrywide made a lot of money by originating these loans and then selling them off. The ones who really got burned were the investors who snatched them up from Countrywide.

Meanwhile, The Washington Post recently reported on a 28-page Bank of America document -- marked "confidential and proprietary" -- that's been floating around Capitol Hill.

The document basically outlines a potential bailout for lenders, where the Countrywide loans and others like them would be dumped on the government. This plan is being sold as a "bailout for homeowners," but it's the lenders who really benefit.

This is a perfect example of socialized risk and privatized reward. BoA is using its influence in Washington to get a deal for itself and other lenders from the government -- with taxpayers being put at risk to fund it.

The question remains: Will this move actually help the homeowners who are delinquent? We'll have to wait and see. There's no telling if this is a workable solution for those who got into loans they could never afford.

Most of us who pay our mortgages every month aren't happy about a taxpayer-supported bailout. But there are complicating factors. For example, every foreclosed house in a neighborhood lowers the value of surrounding homes by 1%.

Still, the takeaway here is this: The next time Congress pretends to act like a knight in shining armor, you need the real story behind the scenes. This is all about bailing out the influentials in the banking business.

More Clark Howard Credit and Banking Tips The dangers of home-equity borrowing  ID checks, minimum purchase rules a no-no with credit cards  The Mortgage Lender Implode-O-Meter  Advance-fee loans are back with a vengeance  Wachovia, WaMu say goodbye to option payment loans  Cycling your unused credit cards back into the mix  Banks offer diverging interest rates on savings and CDs  Mortgage bailout proposal to help banks, not homeowners  Credit limits being reduced without your knowledge?!  65 million paying for credit monitoring/fraud alert services  Full list