by Donald Finley

Created on: May 29, 2009   Last Updated: June 01, 2009

The federal government should not bail out homeowners facing foreclosure. Throughout our nation's history, since we have a free market economy, citizens have been free to make their purchases and investments, and in doing so, accept the inherent risks. People are also free to start their own businesses, and again, in doing so, accept the risks of business ownership and market forces.

In a transaction between a homebuyer and a bank, there are obviously two sides. On one side, the buyer wants the bank to lend him the money to purchase the home, and if the bank will do so, the buyer agrees to abide by the loan repayment plan. On the other side, the bank wants the buyer to get the loan and be a good reliable customer who will make payments on time, whereby the bank makes its profit from the interest on the loan.

The buyer assumes some risk in this transaction. His risks are in the value of the home, and in his continued income and ability to repay the loan. The value of his investment is on the line with the former risk, and his personal credit-worthiness is on the line in the latter. The bank also assumes the risk of the home's value, which only becomes an issue if the buyer defaults, which is the biggest risk for the bank.

Notice that the government is not a party to this transaction, and has assumed no risk by this transaction taking place. Why then is there even a question of the government bailing out those who for whatever reason could no longer make their mortgage payments? To the bank, I say, "Sorry, you misjudged your buyer. You thought he would pay you back, but you were wrong. Now you own a house." To the homeowner, I say, "Sorry, but you entered an obligation to pay back a loan that was beyond your means to pay. Now your credit rating will suffer, and you'll have to move unless the bank will rent you the house."

These transactions have occurred since before the birth of the U.S., and the results and consequences have always been the same. There is no reason to change them now. The high numbers of foreclosures, estimated to be at 12% of all mortgages in the country, does not warrant wholesale bailout of those on either side who made bad choices and assumed a risk that became real. A government bailout takes money from the other 88% percent of mortgage holders, as well as every renter who pays taxes. These are the people who either meet their obligations, or have enough sense not to enter into a contract they cannot live up to.

Under the Obama administration,

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