The real estate blog.

A new “bailout” plan was proposed for the subprime crisis today by Senator Chris Dodd. Unlike the “stimulus” package, the new plan really is a bailout.

Senator Chris Dodd, the committee chair, said he is working to create a Home Ownership Preservation Corporation, which would purchase mortgage securities that are backed by at-risk, subprime loans from lenders and investors.

This corporation would give these lenders and investors a better price for the securities than they would get if the properties backing them were put through foreclosure.

Additionally the loans on these properties would be restructured so that borrowers could afford the new payments and remain in their homes.At first glance, I thought this plan was too much of a bailout. In combination with the stimulus package, it would be wasteful.

Across America responsible borrowers, homeowners and renters are overwhelmingly opposed to a bailout. In my opinion, despite resistance to any bailout, some action by government is needed. Dodd’s proposal is purely a bailout, funded solely by taxpayers to the tune of $20 billion with some hope of future self sufficiency.

According to today’s testimony, the fund might require $20 billion to $25 billion in seed money from taxpayers and, after that, it should self-fund.

Let’s look at a subprime bailout with the following analogy. If your unemployed, meth cooking, irresponsible neighbor’s house catches on fire because of his negligence, do you let the fire burn and spread to neighboring homes, or do you call the fire department? I think most of us focus on putting out the fire. Accountability will come later. The mortgage crisis is a fire, let’s put it out.

With that said, I think Dodd’s plan is going to be more effective for the housing crisis than a $500 check mailed out to a citizen making $75,000 a year. A more suitable plan would be to take the bulk of the stimulus package budget of $150 billion and send it where it needs to be sent. I’d rather my $500 go towards Dodd’s plan than in my pocket. The politicians are trying to raise the income limits that this stimulus package would go to. Why?

For a stimulus package to encourage spending, nobody that makes more than $35,000 should get a check. Redirect that budgeted money towards Dodd’s plan and prop up housing, where the potential damages and potential gains far exceed $500. That’s return on investment. The rest of it should go to the FHA so it can offer special low interest loans to stimulate home ownership and reduce excess inventory levels.