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What's the 'Missing Piece' to the Foreclosure Solution?
Although April foreclosure numbers declined in Massachusetts (The Warren Group), national foreclosure filings increased 32% (RealtyTrac) from April 2008. The foreclosure crisis spirals onward—with people forced from their homes and real estate values plummeting—as economists point to glimmers of hope in the stock market and other industries.
While the Administration’s loan modifications have had rather disappointing results thus far and the new anti-foreclosure plan has some skeptics (See my previous posts: Slow Progress by the Obama Loan Modification Program and Op-Ed Article Better Alternatives to the Anti-Foreclosure Plan ), there is little consensus about how to solve the foreclosure problem.
Some, such as Jim Randel with Huffington Post, claim,
“The missing piece is debt relief ... not a reduction in interest rates, not an extension of the loan amortization period, not a temporary abatement in mortgage payments. We need to confront the problem head on and stop nibbling at the edges - we need to discuss principal reduction.”
The Op-ed piece in the NY Times that I wrote about agreed, and also brought up a program that assists the unemployed with their payments while they search for new work. For both of these authors, the massive number of ‘underwater’ borrowers is of central concern. Randel explains,
“…when one's home is underwater - meaning more debt than value - the desire to fight the good fight is diminished. Why work your butt off to keep paying on a mortgage, even if your payments are reduced to where you can afford them, when all you are doing is treading water?”
However, as adamant for principal reduction as some may be , others argue that Adam Smith’s invisible hand—where supply and demand adjust to reach equilibrium—will fix the foreclosure problem. The government should stay out of it and leave us, and the market, to ourselves and our choices.
The government’s anti-foreclosure additions to the Making Home Affordable program were only announced in May—so agreement or not, this solution will be tried for awhile. Hopefully a consensus will form about whether or not their program is working, and the best course of action will yield some slowing of foreclosures in the not-so-distant future.
While the Administration’s loan modifications have had rather disappointing results thus far and the new anti-foreclosure plan has some skeptics (See my previous posts: Slow Progress by the Obama Loan Modification Program and Op-Ed Article Better Alternatives to the Anti-Foreclosure Plan ), there is little consensus about how to solve the foreclosure problem.
Some, such as Jim Randel with Huffington Post, claim,
“The missing piece is debt relief ... not a reduction in interest rates, not an extension of the loan amortization period, not a temporary abatement in mortgage payments. We need to confront the problem head on and stop nibbling at the edges - we need to discuss principal reduction.”
The Op-ed piece in the NY Times that I wrote about agreed, and also brought up a program that assists the unemployed with their payments while they search for new work. For both of these authors, the massive number of ‘underwater’ borrowers is of central concern. Randel explains,
“…when one's home is underwater - meaning more debt than value - the desire to fight the good fight is diminished. Why work your butt off to keep paying on a mortgage, even if your payments are reduced to where you can afford them, when all you are doing is treading water?”
However, as adamant for principal reduction as some may be , others argue that Adam Smith’s invisible hand—where supply and demand adjust to reach equilibrium—will fix the foreclosure problem. The government should stay out of it and leave us, and the market, to ourselves and our choices.
The government’s anti-foreclosure additions to the Making Home Affordable program were only announced in May—so agreement or not, this solution will be tried for awhile. Hopefully a consensus will form about whether or not their program is working, and the best course of action will yield some slowing of foreclosures in the not-so-distant future.
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Comment by Rich Rosa on June 10, 2009 at 11:27pm - Great post!
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