Wednesday, July 30, 2008

Extreme Makeover: The Foreclosure Edition

Even as President Bush signs a seriously misguided housing mortgage assistance program that will only serve to exacerbate the housing crisis because costs will be borne by taxpayers rather than the banks and individuals who took risks and lost on investments (the houses they bought and offered financing for), a curious foreclosure has surfaced.

It happens to be a family that was featured on Extreme Makeover: Home Edition. The family had a huge home built for them. In fact, it was the largest home undertaken by Ty Pennington and the gang until that point in the show's history. It was huge.

To go along with that home, which was valued at $450,000, the family got $250,000 for assistance in covering the tax payments and carrying charges (utility expenses, etc.), and the family's children got college funds.

So, what happened? Well, the family apparently attempted to start a construction business and leveraged the entire house - with a $450,000 mortgage that they were unable to repay. Hence, the foreclosure.

Who do they have to blame? Themselves and the bank. The bank should have known better than to allow the family to leverage the entire value of the home and the family should have known better than to put the entirety of their home as collateral on a business enterprise.

Bad business decisions abounded.

That in a nutshell is why the housing meltdown occurred.

Lenders, bullied by Congress into lending to those who were unable to pay their bills, threw caution to the wind in the expectation that the housing markets would continue to appreciate. Speculators saw the money offered up by banks and tried to cash in on the market, thinking that it would never go down.

And Fannie Mae and Freddie Mac were run into the ground because the profits were internalized and the risks were externalized to taxpayers. No one was held accountable, and all now all taxpayers will be on the hook for the bad business decisions.

The new housing law cements those decisions and actually rewards bad behavior. It throws a lifeline to those who risked their money and lost.

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