I was floored when I picked up the paper the other day and read that the Federal Reserve is bailing out Bear Stearns, the fifth largest investment bank in the nation. Until the moment it teetered on the brink of failure, Bear Stearns asserted that it had avoided crisis. I wasn’t upset because of the bail out itself, but because it comes only shortly after the moralizing in Washington about not protecting individual homeowners from their own bad decisions.
Sure. Some homeowners may have taken out irresponsible loans on purpose, trying to capitalize on a housing bubble that seemed like it would never burst. But many other factors contributed to the housing crisis we now face.
Medical costs – particularly those costs that individuals bear – are rising so dramatically that folks are struggling to find ways to pay for the medical care that they need. More and more, we are relying on borrowing to cover our medical debts. A recent report confirms what we know anecdotally: even among people who have health insurance, the burden of healthcare costs is too great.
More to the point, many Americans have been forced to turn to the equity in their homes to try to cover their medical expenses. According to a 2005 Harvard study of personal bankruptcies filed in 2001:
Medical debt was also associated with mortgage problems. Among the total sample of 1,771 debtors, those with more than $1,000 in medical bills were more likely than others to have taken out a mortgage to pay medical bills (5.0 percent versus 0.8 percent). Fifteen percent of all homeowners who had taken out a second or third mortgage cited medical expenses as a reason. Follow-up phone interviews revealed that among homeowners with high-cost mortgages (interest rates greater than 12 percent, or points plus fees of at least 8 percent), 13.8 percent cited a medical reason for taking out the loan.
(The Harvard team responsible for this study is preparing an update looking at 2007 bankruptcy data.)
So, now that – in the wake of the Bear Stearns bail out – some politicians in DC are talking seriously about how to help individuals, let’s hope they consider the full breadth of the problem.