And as part of the stimulus, which has already passed the House, homeowners would be able to seek the protection of the Federal Housing Administration for vastly more expensive homes than before. One provision of the bill would raise the limit on FHA mortgages from $362,790 to as much as $729,750 in expensive housing markets, allowing tens of thousands of mortgage holders to refinance int federally insured (read that as taxpayer-backed) loans. It would raise the cap on loans the quasi-governmental financial institutions Freddie Mac and Fannie Mae can purchase from $417,000 to $729,750.

I'll call this part of the stimulus package a taxpayer bailout of people who made some extremely bad choices fraught with tremendous risk. What do we learn? I think this is poor policy that sets a dangerous precedent for the future.

--- the image is hers, by the way (copy and paste)

I have to comment on this...

It strikes me that the current debacle is being remedied for the lenders sake, and not for the home owners sake... so the tax dollars are being directed to the lenders... the home owners are still losing their houses...

So if we are to let the home owners fail, should we not also let the lenders fail?

There are some plans to postpone foreclosures, and to freeze interest rates for home owners, and these plans will not cost the tax payer significantly... unfortunately, only the Democrats are offering up this type of plan...

So, I agree that if home owners made bad choices, and were properly informed, they should pay the penalty... but what then of real estate agents who kept pushing the buyers into homes that were just above what the buyer thought they could afford, and what of the lenders who encouraged these loans by not requiring down payments, or by creating products that were incredibly risky (ARMs in a rampantly over-optimistic market?

There is a tendency for agents to try to move the buyer to more expensive properties, and there was a tendency for lenders to create products that were untested and where the risks were unknown...

So who is at fault?

Everyone involved.

That said (I enjoy repeating myself, I think) there is some confusion here: the change in the allowable Freddie and Fannie loan purchases does not affect current home owners who are not seeking to refinance. It is not a bailout per se, since the loans will have already been made and this will only apply to new loans, or to loans being sold by lenders in the secondary market... this "bailout" is for the lenders, not for the home owners.

Also, given the price of houses today, increasing the limit on Freddie and Fannie is more an effort to account for the increase in the average cost of homes, rather than a bail out for home owners.

So, who is getting bailed out? Lenders or home owners? What relationship does the increase in Fannie and Freddie limits have with current market circumstances? We need to get a clear perception of what is going on. Buyers definitely over extended themselves, especially investors, but also many homeowners were prodded by agents into homes that should have been just out of reach for them, but were never the less they were able to finance them. So, it would appear that all three parties, lenders, agents, and buyers, are creditable with this crisis, and all should feel the pain... but alas, it would appear that home owners will take the brunt of it, lenders next, and agents will skate away with little harm, excepting a down market and inventories at very high levels...

All should take the appropriate responsibility, and redress the cause the within their respective industries, whether that is by government intervention, or through self policing... but most likely, the latter will never happen, especially in real estate.

The answers? Realtors should not push buyers into homes at the very limit of what they can initially afford. Lenders should preclude high risk loan products for owner occupied property loans, and should provide detailed information to the borrower, and of course, buyers should know what they can afford, and understand the risks, so that they avoid uniformed purchases that may adversely impact them in the near future. As for investors, they should know what they are doing, and pay the penalties for risks that failed.

What are your thoughts.