Who gets help from Bush foreclosure fix?

Apparently I’m not the only one reluctant to have the government step in and subsidize borrower’s stupidity or negligence.  Has anyone attempted to quantify the cost of a government bailout?
— Marc B., Charlotte, N.C.

At this point, the cost of cleaning up the mortgage mess is really unknowable.

The White House plan to freeze rates would mean investors who bought the bonds backed by these mortgage would have to accept less money. But many of these bonds have already lost value because no one wants them at the original price — which was based on the flawed premise that people who were sold mortgages they couldn't afford would somehow figure out how to pay them off. Bonds that carry the greatest risk — those in the mortgage pools that get paid last if any mortgages default — are trading for as little as 20 cents on the dollar. So some investors figure something is better than nothing.

Under the Bush plan, no taxpayer dollars are being paid directly to borrowers or investors, so in that sense the plan is not a “bailout.” But both sides get something out of the deal. Homeowners get a break on mortgage payments they committed to and investors increase the chance that the loans they own won’t default.

A lot of adjustable mortgages won’t be covered in the Bush plan. If those homeowner can’t keep up, the cost of foreclosures will rise, investors will see more losses from defaults, houses will be put back on the market and hurt everyone's house price, and communities with high foreclosure rates will deteriorate. 

So the rise in foreclosures is going to be expensive one way or another. Last month, Fed Chairman Ben Bernanke told the Joint Economic Committee of Congress that he thought $150 billion — about what it cost to clean up the savings and loan industry mess in the late 1980s — was “in the ballpark.”

That’s his estimate not mine. It could be more.

One point to remember: We all drink from the same financial well. You can’t have 2 million more people lose their homes and not expect a serious recession along with it. If that happens, more people lose their jobs and their income. They then have less money to spend, which hurts other businesses. And there are fewer people who can afford a home, so weak demand prolongs the housing recession.

One way or the other, the housing and lending bust is going to cost you. If the government can step in an minimize the damage, we’re all better off in the long run.

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