Sunday, August 22, 2010

Foreclosures Grind On

New York Times editorial "Foreclosures Grind On" (August 19th, 2010) suggesting that the government intervene in helping those who can't afford their mortgages avoid foreclosure notes that,
Another big problem is that many lenders, whose participation in the program is voluntary, have been reluctant to aggressively rework bad loans. Reducing a loan’s principal balance — rather than lowering interest levels or extending payout periods — is often the best chance of keeping underwater borrowers in their homes.
The entire article is predicated on the assumption that, somehow, borrowers were prey for lenders. Any reasoning individual could see the situation for what it really was--those who couldn't afford to own homes taking advantage of the opportunity to live in them for a short amount of time. The number of homeowners skyrocketed in the past decade, as the figure below shows, and now appears to be falling back to historical levels (click here to enlarge). For some reason lost upon us, the New York Times article suggests that the government intervene to maintain apparently unsustainably high levels of homeownership.

Lenders suffered after housing prices fell, not ineligible homeowners who entered their contracts just as they will leave them (with nothing). It is unclear to Corrections why taxpayers should fund those who have already have enjoyed stays in homes well beyond their means--it would seem that for nearly a decade already they have gotten more than they paid for.

1 comment:

  1. There is likely some social stability and societal benefit in people being homeowners. But it is unclear that that stability/social benefit is enhanced in owning a more expensive versus a less expensive home. The housing boom pushed housing prices up to a level well beyond what normal people could afford - a bubble of necessity as it grows has to push the prices of the bubble asset to a point where demand fails and the bubble bursts. Government policy aimed at maintaining prices at a high level actually penalizes families who would like a house but cannot afford them. Prices should be set by markets not by government. Let the chips fall where they may, let housing prices fall to levels that are rational to buyers and get the resetting of market prices done in a timely manner. For every family who gambled on the bubble and lost, there will be a family who can now buy a house they can afford. The people who lose houses they cannot afford can work, save, and then buy a house they can afford like the rest of the population.