Some want to Outlaw Subprime Mortgages.. I Have a Better Idea.

Umm, let’s not and say we did.

The American Prospect, one of those high-brow magazines you see in the doctor’s office that you don’t bother picking up, has a suggestion on how to avoid the subprime mess going forward. They want the Federal Government, (who brought you the amazing Katrina response and the Walter Reed medical story last year) to help you sub-primers out there. They want to stop those bad ol’ loan-sharking lenders from ever giving out those stupid mortgages again—by banning them.

While it sounds great on paper, I think this is yet another time where we should not let the government step in and try to “save” grown adults from themselves. Usually, nothing good comes from such moves. Most people got into the subprime (adjustable rate) mortgage market to start with because they were (a) looking for a cheap and temporary teaser rate and were planning on preparing for the adjustable part “later on,” or (b) looking for a low rate because the fixed rates at the time were too high to get into a home. For the future, buyers should beware of such temporary fixes.

The blame doesn’t completely rest with the borrower though—some of the lenders who wrote out these “bad” mortgages were receiving excellent commissions to keep the debt pile growing. Eventually, someone had to take care of it; now bank after bank continues to write down billions (yes, with a “B”) of dollars in debt

Stay away from adjustable rate mortgages (ARMs) and interest-only mortgages because you never know what the future holds in terms of your ability to pay. Stick with the fixed-rate mortgages, and you’ll be less surprised (if at all) about how much you’ll be paying five, ten or fifteen years from now. And above all, don't depend on the government to bail you out of poor decisions--it creates a culture of dependency that usually allocates more power to the feds, and usually that's not a good thing, no matter how good it may sound.