Sunday, July 27, 2008

Halting Foreclosures

homeforeclose.jpg While driving, I heard on the radio a news story where a politician was proposing putting a halt to all foreclosures for two years.   The purpose of such a moratorium was to "save the American Dream" for all those families who will be kicked out of their homes in the coming years.

Let's forget the fact that most of these are homes that these people could never have afforded in the first place.  Let's also forget about the rights of companies, and by extension their shareholders, to collect the money that was agreed to in writing by the people who signed these mortgages.  But really, to protect the American Dream.

That is clearly a phrase that politicians just love to throw around whenenver it is convenient for them or when it makes for a good sound bite.  But are we really protecting the American Dream by allowing these people to stay in these homes that they can't afford, even with a lower mortgage payement?  No.

What about the American Dream for all those people who didn't get caught up in the craze?  Those who were careful and responsible with their money and didn't get caught up in the frenzy of a housing bubble?  Are you telling me that our government should favor those who already own a home vs those who don't?  Doesn't that sound a little bit like the rich getting richer, pretty much exactly the opposite of the American Dream?

How can I make such a claim?  Wouldn't helping all these familes stay in their home be the right thing to do?  Sure, if you want to prevent anyone else from ever being able to reasonably afford a home.  How can this be?  Look, the current foreclosure wave is a GOOD thing.  It will bring prices back in line with where they should be, much much lower.  If you allow people to continue to live in homes they can't afford, you will not put downward price pressure on home prices.  This desperately needs to happen if we ever hope to get back to a level of afforability.  People will have no reason to sell their homes for less, because the supply of homes will be much lower.  Banks won't have any incentive to sell foreclosed homes at a lower price either since the inventory on their books will be much lower than would be otherwise.

So let us not kill the American dream for the rest of those unfortunate enough not to already own a home.


  1. I agree that this moratorium is not the solution for those families who will lose their homes because they can't afford the mortgage. Setting aside the "American Dream" argument, what if we kept these families in homes they can't afford? Does that really fix the underlying problem for those families? Let's say the government goes through with this moratorium. What will happen? These families would (a) have to continue to live with the anxiety and stress of minimal to no savings; (b) still pay a loan they know they can never payoff; (c) continue to use their credit cards to pay for everyday items (because almost all their money goes to the mortgage); and (d) end up in the same predicament after the moratorium ends. Bottom line: a moratorium will NOT put these families in a better position.

  2. The government needs to step in. If you're in southern California, drive through Rancho Cucamonga and Riverside. People have already started to abandon their homes. No foreclosure signs or anything, just overgrown yellow grass and mailboxes full of mail. Where do you think these people will go? Let me tell you, it's not Mexico or Canada, but another state. These people who are in financial trouble will bring their woes interstate and destabilize those states that are doing okay. A moratorium is not the ultimate solution, but it will at least contain these people until the government and banks figure out what to do next.

  3. I don't see what the big deal is?! OK, there are families out there who cannot afford their mortgages. Somehow they have been paying the loan but are now feeling the burn of a wrong decision. You know what this is? A bad gamble. Just like in Vegas, when you play and play but keep losing, what do you? You cut your losses. Let's face it, even if these families continue to pay their mortgage somehow, the loan is so large that they will never own their house. So what are they fighting for? What American Dream are these people on the radio referring to? A dream to be in debt for the rest of your life? These politicians make me sick. What nonsense! These struggling families need to cut their losses and start anew. Let the foreclosures happen. These families can find reasonable rent and then over time they'll be able to do things like save for retirement or supplement their kids' education.

  4. Why should the government save people who got in trouble? Why should I care if someone moves to another, cheaper state? I hope people do! The outflow of people would actually cause a drop in demand for housing, making housing prices go down even further.

  5. It's actually a sad truth that the government and the real estate industry has hurt so many people by instilling in their heads that home ownership is the road to wealth. People used their houses as piggy banks and kept taking money out. They just never realized, someone had to put the money in there in the first place.

  6. My neighbors are among the families that are in trouble. They have lived in their house for seven years. I would hate to see them go. So I would vote for whatever will work for them to stay. Their kids are real sweet.