Taxpayers didn’t cause the mortgage mess and shouldn’t pay to clean it up

It was an old house in a sketchy neighborhood, but it was ours.

Well, actually, we owned about a fifth of it. The other 80 percent belonged to the bank.

My wife and I had put a few thousand down and we had a mortgage on the rest – 13.1 percent interest for 30 years.

That’s not a typo. Interest rates were that high in 1979.

Despite what you hear about our current mortgage crisis and interest rates going up, I’m pretty sure that nobody in America is paying 13 percent.

I would lie awake at night thinking of my crushing burden, my $500 monthly payment, hanging over my head.

But I learned two clear lessons:

First, interest rates do go down. I eventually refinanced that house several times until I had, as I recall, a 6 percent rate.

Second, interest rates might go up and, if they did, I didn’t want to ever pay 13 percent again. So, for the past 30 years, I’ve been cautious. My wife and I have purchased several more homes and, each time, we have been offered a fixed- or adjustable-rate mortgage. Easy decision: lock in and hang on.

And, for most of 30 years, that bit of caution has cost me money. The adjustable rates have always been lower, meaning my fixed-rate mortgage has resulted in higher monthly payments.

I’m not a good gambler, so I’ve accepted that cost with equanimity.

Today, I find no satisfaction in seeing people lose their homes and banks scramble to cover their huge losses. But I don’t accept a bit of responsibility for it, and I certainly don’t want to see my tax money used to bail them out.

Yet, that appears to be the direction our president and Federal Reserve chairman seem headed.

“However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer toward a government rescue of distressed homeowners and mortgage lenders,” said Wednesday’s New York Times.

Last week, the administration removed limits on the volume of mortgages that Fannie Mae and Freddie Mac can hold, allowing them to buy up thousands of mortgages that regular investors are “too frightened to touch,” the Times said.

Because both companies are federally chartered, the story said, investors assume Congress will bail Freddie and Fannie out if things go south. And I’m sure they, I mean we, will.

And Democrats, of course, are urging even more action. They want the FHA to insure $20 billion in troubled mortgages.

Come on. Some of us have been around long enough to remember paying for the last bailout, the S&L crisis of the mid-1980s.

Perhaps you remember Charles Keating, who ran Lincoln Savings and Loan, and who went to jail – ending the careers of three U.S. senators and damaging two others, including John McCain’s.

Yes, yes… this crisis is all different, the experts say. But, when you think about it, the central themes are the same – lenders overeager to cash in on a housing/construction boom, making loans to people who are not creditworthy.

So, if we don’t bail out the holders of sub-prime mortgages, what will happen?

Banks will fail! Not my problem. Not yours, either. CEOS and investors will lose their shirts, as they should.

People will lose their homes! Well, they were probably renters before, and they will be renters again. Under realistic lending practices, they would not have received loans in the first place. They are now, unfortunately, back to square one.

Again, taxpayers did not cause this, and we should not have to clean it up.

Housing prices in places such as Phoenix and Los Angeles will collapse! And the problem with that is? Those markets were overheated, overvalued and overblown by speculators anyway. The can now join us back here on planet Earth.

The recession will be even deeper! What, than the one we’re already in? Spend tax money on something productive to stimulate the economy, such as fixing roads and bridges. Don’t throw good money after bad.

If I know my federal government, it would just borrow money to bail out the borrowers. Part of our current problem is our vast quantity of consumer and public debt.

The risk, I think, of another housing bailout is also real – people who acted prudently, who opted for fixed-rated mortgages, who worked hard to pay them, who paid their taxes will, just as in 1984, be left holding the bag.

Worse, it will be a confirmation to the next generation of mortgage lenders that risk doesn’t matter. If you make enough bad loans – say a million or so – taxpayers will pick up the pieces.

In another 20 years, another generation of Americans will be bailing us out of another housing crisis.

Rex Rhoades is executive editor of the Sun Journal.