Affordable Housing Bond <> Bail-out

I know this is old news and other bloggers have already covered it, but I find it so dang ironic and so it's been nagging at me.

Basically, because California is unlikely to receive any Federal money to bail out screwed borrowers due to our extremely high housing costs, Ted Lieu and others on the California Banking and Finance committee have decided it would be a swell idea to use part of the Affordable Housing Bond (Proposition 1C, approved by voters last November) to fund a bail-out.

You already know my opinion, for what it's worth, about a bail-out in general (here, here, and here). But I seriously doubt that such a bail-out is what the voters had in mind vis "affordability" when they approved the bond measure. If California assembly members are really interested in affordable housing in California, then bailing out debtors is exactly the wrong thing to do as it will only help to keep prices ridiculously high; more affordable housing would be created if there were no bail-outs at all. Just give the market time to re-establish balance and force prices back down to levels justified by the fundamentals, and then we will have a more affordable housing situation again which would be good for families, communities, businesses, and the state as a whole.

I much prefer Senator Machado's alternative idea (SB385), at least if it has teeth:

...require state agencies that license lenders to operate in California to follow more-stringent loan approval guidelines issued by federal agencies in autumn.

Machado said subprime lending practices should be scrutinized in the future, but stopped short of agreeing with Lieu that the state should create funds to help restructure mortgage loans.

I'm all in favor of doing everything that can be done to prevent a repeat of the insanely loose and, in some cases, "predatory" lending. But bail-outs are not how you fix the problem; they just keep the problem in existence and encourage it to recur in the future.

And I am not alone. Here is a comment left over at the very good Southern California Real Estate Bubble Crash blog that includes a phone number that you can call to express your opinion (I called it and it does indeed lead to Ted Lieu's office):

“TED LIU (CA assemblyman) and others on the California banking and finance committee passed a proposal Monday to use money from the Affordable Housing Bond to bail out homeowners who were “victims” of “predatory” financing and can’t make their mortgage payments. CALL Ted Liu’s office, talk to Tiffany or Mark, 916-319-2053, and call every assemblyman on the appropriations committee (that’s where it goes to a vote next), and call your local state assemblyman, tell them you don’t want your hard-earned tax dollars going to bail out buyers who overpaid and didn’t read their loan documents, tell them the affordable housing bond money was to be used for affordable housing not for bailouts, call or don’t complain when it happens!”

Or write a letter and send it to these people. Better yet, do both.