When is a Bailout, not a Bailout? To answer that question, we apparently need only ask Rep. Barney Frank, author of the $300Billion Housing bill that is making way through the Senate as I write. While Mr. Frank does acknowledge (to CNSNews.com) that it is not the federal government’s job to bail out people who take risks and loose, he is adamant that the Housing bill is not a bailout.

“No." said Frank, "No, I don't think it is a bailout.” when asked by Cybercast News Service. "Who are we bailing out here?”

"Not one penny is going to the lenders other than what borrowers already owe them…”

“We are not totally bailing out the borrowers because they are getting no public money," Frank added. "What they get is the right to go to the FHA and get a guarantee if they can show the FHA that they can repay it."

Some of you may not have been following The Housing and Economic Recovery Act of 2008, as it moved through Congress in August of 2007. For those of you who didn’t, it provides $300 billion for the Federal Housing Administration (FHA) to back less expensive home loans for borrowers who face foreclosure.  Sounds like a good idea, in light of the national foreclosure problem we are reminded of every night on the news, right? But let’s just take a closer.

Since January of 2006, approximately 263 major U.S. mortgage lending institutions have fallen by the wayside. They have gone bankrupt as a direct result of making loans to people who could not repay them. I don’t know about you, but that sure sounds like those institutions took a risk and lost – big time!

Now jump forward to today. Imagine you ran a company that did a tremendous amount of sub-prime and option ARM lending in the past. Let’s say that maybe you were actually one of the largest lenders nationwide is this category of loans, for years and years.  Yet somehow you have managed to stay in business to this point. Now how would you feel if you could suddenly send your own book of “bad debts” to FHA for refinancing? Not only would that save you millions of dollars in additional losses, but that leaves your balance sheet looking swell. Now all you will have left on your books will be well performing loans. (Gee, you might even see your stock shoot up. Do you think?) But hmm, let me see if that makes sense. You took enormous risk and made bad loans. But rather than loose it all, you get to drop off you bad decisions at FHA’s doorstep. And oh by the way, your company already originates FHA loans. So now that FHA will be lowering its’ standards to accomodate you poor decision making, you get to make more money refinancing and servicing the same bad borrowers. The difference is that when these bad borrowers don’t repay their new FHA loans either, you don’t have to worry – BECAUSE THEY ARE GAURANTEED BY THE FEDERAL GOVERNMENT. In case you missed it…that means the rest of us!

And in case I didn't mention it, there is white glossy icing on this cake: Bank of America (who has purchased bad decision making Countrywide) for all practicle purposes drafted this bit of legislation. So how does that get to happen, you ask? Well the sponsers of this beill in the house and senate, quite by accident I am sure, all received "sweet heart" loans from Countrywide in the last year.

Bottom line:  You might want to contact our US senators and tell them to kill this bill. (You can email them or call the following numbers: Wayne Allard (R) can be reached at (202-224-5941). Ken Salazar (D) can be reached at (202-224-5852). Otherwise we might all get to pick up the $300B tab now, and then again when the inevitable happens, despite this brief postponement.