As I understand it, one of the big underlying causes of all this turmoil is that the mortgage lending operations started issuing mortgages that were just wrong. At best, they were bad judgement; at worst, they were predatory. After all, millions of mortgages were issued based on adjustable rates, which were then refinanced at higher interest than the borrower could afford. Or mortgages were issued with interest only payments, leading up to balloon payments. And the whole thing was based on an assumption of increasing value in the housing market.
Secretary Paulson says now that the bailout doesn’t need any further provisions on keeping families in homes, because giving the banks the capital and unfreezing credit would allow the mortgages to be refinanced, keeping people in their homes?
So why doesn’t the $700 billion bailout program include accountability that says the lending institutions who issued the mortgages have to reissue and refinance them at reasonable rates? Why can’t there be some sort of caveat placed on this bailout that forces banks to work with people to avoid foreclosures? Couldn’t the failing mortgages be re-evaluated and refinanced based on current home values and interest rates, not the previously inflated values and the adjustable, increased interest rates in ARM’s? If the mortgage lenders are going to lose money, wouldn’t they lose MORE money by foreclosing and having to re-sell the house at current values anyways? Would it increase the value of these securities at ALL to force the securities holders to push the lenders to keep people in their homes?
And in any case, WHO is being held accountable for being allowed to issue the mortgages that now make up the “toxic debt” that the Fed now wants to buy up on my behalf?
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