Local experts have doubts about bailout relief

Views diverge over how to help homeowners who can't pay mortgages

By John Rebchook, Rocky Mountain News (Contact)

Published September 23, 2008 at 9:39 p.m.

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Though it appears increasingly likely that the largest bailout plan in U.S. history will provide some relief for millions of homeowners facing foreclosure, some local experts say that is not a good idea.

Democrats and some Republicans say they won't approve the $700 billion plan to rescue banks loaded with toxic loans unless it also provides relief to everyday people suffering from the mortgage meltdown.

The idea is not just to help Wall Street, but also Main Street.

"There is a lot of talk about how some institutions - most recently AIG - are just too big to be allowed to fail," Nancy Zirkin, executive vice president of the Leadership Conference on Civil Rights, said in a statement Tuesday.

"That may be true. But this country is made up of millions of small homeowners who can't be allowed to fail either."

Sarah J. Hays, a broker with Colorado Investors Real Estate Services/Metro Brokers, said she has "seen some really heartbreaking stories. You have to look at a family and tell them you've tried everything, but they're still going to lose their homes. These are just everyday people with kids."

And Hays predicts another wave of foreclosures will hit the Denver area, possibly by year-end.

She said some homeowners are victims of predatory lending and she'd like to see them get relief from the government.

Others, however, "knew exactly what they are doing," when they "bought and bailed," using the former lax mortgage underwriting standards to move into houses they knew they couldn't afford.

"But there is such a mix out there, I don't know how you could put a Band-Aid on it from the government that would fix it," she said. "Right or wrong, it is what it is."

Lou Barnes, principal of Boulder West Financial - who eight months ago correctly predicted that a massive federal bailout would be needed - called the current proposal terrible and said that adding help for homeowners would not make it better.

"The best way to help the homeowner and everybody else, is release them from the grip of this credit crunch," he said. "That is the worst problem housing has right now. People are unable to refinance and people who would like to buy cannot."

The government should be injecting capital into banks, rather than buying its failed loans, repackaging them and trying to sell them, he said.

Barnes said the root of the problem is that for the first time ever, lenders made loans to people who didn't meet even minimum requirements to buy a house.

"I think it is unwise to attempt to bail them out with wads of federal money," said Barnes. "The only way you could do that is to pay off their mortgages for them."

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