How Many Billions to Bail Out Borrowers Who Fraudulently Took Out Liar Loans?

The government is looking into the possibility of bailing out underwater mortgage borrowers, including speculators and McMansion owners.  It’s also seeking to extract many billions of dollars from the nation’s largest banks (like Bank of America, whose stock price has fallen from $15 last year to $6.50 today, leaving Americans’ 401(k) plans, which commonly invest in banks, that much smaller).  A letter in The Wall Street Journal wonders how many people who fraudulently obtained “liar loans” will end up being enriched by the government’s actions:

The Departments of Justice and the Treasury are in the forefront of the effort to penalize the major mortgage loan servicers a gargantuan $25 billion for some paperwork glitches that resulted in virtually no unwarranted foreclosure proceedings (“Banks Spar Over Loan Settlement,” page one, July 27). Meanwhile they are giving a pass to the many thousands of borrowers who committed the federal felony of lying on their applications for federally insured mortgage loans. It would be interesting to find out how many homeowners, who could be prosecuted for defrauding the federal government on their mortgage applications if the government chose to lodge the charge, are expecting a handout from the proceeds of the “offense” of shoddy paperwork that caused so little actual damage.

In 2010, Administration allies proposed a trillion dollar bailout that would use taxpayer money to bail out certain borrowers (those whose loans are held by two government-controlled mortgage giants, Fannie Mae and Freddie Mac).  Fortunately, that has yet to transpire.