Soooo…effectively, you agree with me. (And I with you, except that I feel any reduction of (future) foreclosures will be helpful in stabilizing the housing market. But that’s simply a matter of degree.)
I have to say that you have an…umm…interesting way of expressing that.
I think the quote about moral hazard is right on and it will do no good to keep harping on it. Although the S&L bailout in the 80s might have made lenders even more careless. Anyone who wants to think about this should read the lead article in yesterday’s New York Times magazine. Basically about Cleveland (although several other cities were mentioned) it is that the rash of foreclosures has essentially destroyed certain neighborhoods. One house in 13 is in foreclosure and you can buy a house for essentially 0. The only thing is that abandoned houses are quickly stripped and then condemend and the owner is liable for the costs of tearing them down. There was one especially poignant story of one family that bought a house, fixed it up, made various improvements and then couldn’t keep up the mortgage. The mortgage holder started foreclosure proceedings, the family stripped the house themselves and disappeared. At the last minute, the mortgage holder withdrew their foreclosure petition when they reallized that the value of the property was negative (they could be forced to pay of demolition). Why are banks continuing to foreclose such properties? Wouldn’t everyone be better off if a bankruptcy judge was able to lower the amount of the mortgage? I don’t understand why they don’t see that they would better off with some payment than with none.
Moralists say that people have to learn not to overextend themselves in this way and I have some sympathy with this point of view, but somehow they don’t find the lenders who made NINJA loans (No Income, No Job or Assets) equally culpable, if not more so since they are in a better position to judge these things.
So what do you do when you pay 400 K for a hose and the one across the street goes empty for a year or so.,then it sells for 250K. They have the same house you do. They make smaller payments and pay less property taxes. You take solace in the thought you have been responsible,but it costs you hundreds of thousands more.
What has to be done. is for people to buy homes not just investments. Look it as a place to raise kids and get to know the neighbors. But a house is not an ATM to buy whatever you want.
People will learn not to overextend themselves right after they learn not to drink too much and have unprotected sex. There is this cult of deregulation assuming a level of personal responsibility which is counterfactual. Deregulation allowed an environment to foster where all parties found it to their temporary advantage to make idiotic deals.
Plenty of people who bought homes as homes are getting screwed also. As for price differences, my neighbor bought his house for probably a third of what I bought mine for, and thanks to Prop 13 has almost no property taxes. A guy down the street bought his for a couple of $100 K more than me, and has more property taxes too. That’s the market. We’re so used to it always going up, it seems unfair when it goes down, but unequal purchasing prices are always going to be with us.
That said, a bank might well be willing to refinance in those cases, Voyager and Gonzomax. But trying to cramdown all mortgages generally is just… unhealthy.
For a good analysis on this topic, This American Life did a great show on the banking crisis.