Monday, July 28, 2008

The Bailout Is On

On Saturday, the Senate voted overwhelmingly to pass the much discussed foreclosure relief bill.  With the measure already having passed the House, it will quickly go to the president, who (in a reversal of position) indicated last week that he will sign it.  Like any major piece of legislation these days, it has lots of moving parts (including, of course, some entirely unrelated to housing), but arguably the most important provision in the bill authorizes the Federal Housing Administration to refinance up to $300 billion worth of mortgages that would otherwise enter foreclosure.

And thus, up to $300 billion worth of privately-held bad loans --loans often made by irresponsible lenders, and often made to irresponsible borrowers-- will be transferred to the federal government’s books.  Borrowers will get to keep homes they couldn’t otherwise afford, and lenders will receive higher compensation for their bad loans than they would get by foreclosing. Indeed, the only losers are taxpayers, who assume the risk of those loans defaulting. 

In sum, just the kind of bipartisan action we’ve come to expect from Congress.

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