Warning: if you are a bleeding heart do-gooder this post will probably piss you off.

I feel terrible for people in financial trouble - I’ve been there. I want everyone who deserves help to avoid foreclosure to get it. But I want to see proof of their innocence first. If all this political drama about subprime borrowers who were innocent and taken advantage of is true, I want them to provide proof. Listening to Paulson, Jackson and Bernanke today fielding questions about the housing crisis from politicians was very interesting. I know these guys mean well and of course, no one wants people to lose their homes. However, assuming that the government needs to help everyone who is in trouble is just plain wrong.

First of all, in the case of troubled borrowers who got a “no money down” mortgage, what equity are they going to lose? Sweat equity? Emotional equity? Appraiser inflated equity? Bubble equity? I doubt they built equity from mortgage payments they’ve made since achieving the “American Dream of homeownership” that is “the envy and role model of countries around the world” (sorry I am just tired of hearing that crap.) As most people who are not ignorant of mortgage payments should know, almost 100% of your payments in the first few years goes to interest, not principal.

Next, let’s evaluate the cost of a sweetheart mortgage versus paying rent to shelter the family. It seems to me that these tight budget folk bought got into the house because they figured out that the teaser mortgage payment would be cheaper than the rent they were paying. Seems logical, but we have been expected to believe these people are not capable of evaluating the financial consequences of such a complex transaction. Oh well, let’s assume they were at least capable of comparing two numbers. In that case, they may have actually saved money by being in this mess. Other than the stigma of foreclosure how bad has it been for these people compared to what they would have had to spend for shelter anyway? In summary, what can you lose if you have not contributed anything?

I get the whole plan of lenders voluntarily renegotiating with troubled borrowers. But if they didn’t ask for proof that the borrower knew he was capable of making the payments when they gave the loan, are they not going to ask the opposite question this time? What proof is required for someone to say they cannot afford to pay their mortgage? I think it’s reasonable for the borrowers to have to show hardship if they want a handout or a bailout. What kind of car are they driving? What cell phones are they dialing? What restaurants are the eating at? What clothes are they wearing? How many packs of smokes are they burning? What about booze? The mortgage is a big payment, but there are many choices that we all make for spending money. If the borrower is capable of buying nothing other than the necessities, I am all for them getting the lowest possible refinance payment. Isn’t it fair to ask for proof?

One of the key things that has bugged me about helping people with their mortgages is the whole concept that most of them did not know what they were signing and they were taken advantage of by the predatory lenders. I’ve seen the estimates that over half of the no doc loans were made to people that lied about their financial condition and capacity to pay. One poll suggests that the exaggerations were extreme - the equivalent of saying you make $50,000 per year when it’s really $30,000. Why did people lie? Did they just accidentally lie? How did they come up with the number that they needed to say to get a loan when they weren’t good enough at math to evaluate the future interest rates and associated payments? So, I think it’s only fair to pull out the original loan application and look at what they signed their name to. If they can show a number that was truthful and matches tax returns or other evidence, then give them the help. If the info was true at the time and they lost their job or had other financial problems since getting the mortgage, then give them the help. On the other hand, if they lied about their income to get the loan, then they aren’t innocent and they don’t seem ignorant of the financial implications of their actions. Isn’t it fair to ask for proof?

Many people are in need of help. If they are innocent and did nothing to contribute to the subprime mess, then they deserve all the assistance they can possibly receive. Unfortunately, there will be others who lied to get the mortgage and who will lie again to take advantage of this opportunity. We cannot allow the limited resources we have for those truly in need to be diminished in this way. I am fully behind the idea that we need to help the innocents who have been taken advantage of but isn’t it reasonable to ask for proof of that innocence?