Dude, time to bail.

Well here it is, JR. chimes-in on the “bail-out.”

This is a more elaborate version of a comment I left on a fellow mortgage monkey and part-time blogger’s site.

I teeter back and forth on this topic. On one side, I can easily go Tyler Durden from Fight Club and say “Burn it all to the ground.” But from the other side, I say we need to fix this issue to save/stabilize the world economy and I honestly believe that.

However, I am really, really against the Gov’t. taking everything over.

But that being said, we see what happens when the free market regulates itself. Take that Republicans.

The blame starts at the top, with the Gov’t. As the Fed lowered interest rates to perpetuate lending and keep money flowing to “grow” the economy, it was actually creating artificially high real estate values. Instead of looking ahead at the potential consequences of “a house for everyone” policies, they just kept forcing money back into the primary mortgage market and pleaded with banks to come-up with more exotic ways to qualify and approve borrowers.

Which brings us to the banks. Yes, the poor, poor banks (sarcasm) who were forced to oblige the Gov’t. and craft “innovative” and “dynamic” niche loan programs that allowed anyone with a credit score and a pulse to qualify for a home loan. Not to mention drafting programs/guidelines that dismissed normal safeguards to loan qualifying by no longer verifying common sense things like: Income, Assets or even Employment.

Then there is what I truly believe is the biggest issue with the industry, the uneducated and still far too unregulated loan originators. Having been an LO myself, I have seen how little training goes into the job and how little oversight there is once taking loan applications. There was far too much money to be made by placing borrowers into short-term high-paying loan programs with too little oversight as to whether closing the transaction was actually in the borrower’s best interest.

This old system of paying more for placing borrowers into higher rate programs needs to stop. As it is rewarding everyone for placing borrowers into loans that are not beneficial to them. This applies to the wholesale (LO to bank) and Secondary (bank to bigger bank/Wall St) mortgage markets.

Then there are the borrowers themselves. People threw common sense to the wind as they were offered astronomical sums of money with little documentation and no money down. Who wouldn’t take that deal? The only issue was that people no longer bought what they could afford, they bought what they wanted. Which sounds like a good deal, until you can’t pay your bills and get foreclosed upon.

I don’t feel bad for homeowners.

Sure some people probably got duped, but not as many as are being claimed…I’ll put it like this, when I went car shopping I didn’t go to a Bentley dealer. I rolled to a used car lot, because that was in my price range…people should have applied the same reasoning to buying a home, but obviously, they didn’t.

So who fixes it? I think everyone should. As no one is without blame.

I didn’t like the first incarnation of the bail-out as it didn’t do anything for the average homeowner, who is stuck with devaluing property and payments they can’t afford. While the Lenders and Wall Street investors who made ridiculous sums of money securitizing and selling bad loans get off scott-free.

Gov’t. is a stop-gap, not a solution. Simply wiping the slate clean is a terrible idea as there are no consequences to learn from. There were huge amounts of money made from this debacle (See former WAMU CEO Kerry Killinger’s $16.5 million severance package) and these companies should be held responsible for their careless actions.

The real solution is better gov’t. regulation, not a takeover, which should ensure smarter lending practices by the (few remaining) banks.