Housing has dropped in price since the peak approximately 20%, much more in some areas and less in others. The Bailout, in all its incarnations including the one being discussed right now in the senate has one ineluctable element that creates a conflict among Democrats.
The United States will own thens of thousands of non performing mortgages. And here is the choice for that portion of which the mortgagee has the income to pay something less than the contractual payment, which is to reduce it, or to foreclose.
Foreclosure causes pain for those who lose their homes, this is a given. However forbearance, which can be in one of two ways, lowering interest or principle, exacts a cost on the mortgagor, in this case the taxpayers of the United States.
This decision will be in the hands of the Secretary of Treasury, who for this discussion I will assume is a democratic appointee after four months of Republican Paulson having the authority.
The argument for forbearance, for adjusting the mortgage to the capacity of the owner to pay is as follows: It will provide stability for the distressed neighborhood and ease the pain on the family foreclosed upon. And in some cases the mortgages were unethical, in that they could have been offered a lower rate fixed interest based on their credit rating. The argument that lowing interests temporarily is of no cost, is not accurate, since this assumes an increase in value of the home before the house is sold.
The argument for foreclosures is one of moral hazard and equity. The individual who bid up a house to 120K beat out the buyer who could have afforded it at his bid of 110K. Now if the present owner gets his 100% mortgage reduced to 90K he is being rewarded for irresponsibility, and the person who lost the house at his responsible bid faces an artifically sustained higher housing price.
And the reduction of the mortgage, in interest or principle, under the bailout will be paid not by "Wall Street" but by the neighbors of the individual who is receiving the retroactive subsidy, the taxpayer.
In the binary choice in the poll, let us assume that new regulations will be put in place, fraud will be punished, and this will not happen again in either choice.
It an up or down vote, just like Congress has to take.