Marketplace Scratch Pad

The Housing Conundrum

Scott Jagow Feb 17, 2009

The President will sign the stimulus bill into law today in Denver. Then, he’ll focus on the housing market, with some kind of announcement coming tomorrow in Phoenix. He’s discussed several proposals for helping people who can’t pay their mortgages or won’t be able to pay much longer. I’ve read some interesting opinions about this issue. It’s a very touchy subject for most people.

I’m generally a fan of taking personal responsibility. If you get yourself into a bad situation, you oughta be required to get yourself out of it or at least pay a substantial price for being rescued from it. But this housing “market” is not so clear-cut. The mortgage lenders were thoughtless and greedy and sneaky. They preyed on people who didn’t know any better. You just can’t argue that. Plus, it’s very hard to watch the government bail out the financial industry and then turn around and say — homeowners, you’re on your own. It’s not right.

At the same time, you had other home buyers who preyed on the housing market. They flipped houses like they were day-trading stocks. What do you do about those people? It doesn’t seem right for them to get bailed out either. It’s just an exhausting mess. How do you come up with a plan that doesn’t let everybody off the hook but does allow for some forgiveness? I honestly don’t know the answer. Anywhere you draw the line seems arbitrary. But doing nothing for borrowers when we’ve already poured so much money into the lenders doesn’t seem
reasonable either.

Maybe it should be up to the courts. I read an interesting take this morning on the idea of allowing bankruptcy judges to determine mortgage values and payments. I cringe at the thought of putting one more Jenga piece on top of the court system, but as the author of this op-ed suggests, maybe “bankruptcy can cut (the) Gordian knot” that’s been created by twisting mortgages in so many ridiculous ways.

The idea is that, rather than simple collapse, overall, this court-enforced sharing of pain results in a better recovery for everyone.

Another question is: what will a housing rescue plan do to home values and mortgage rates? Some people argue that aiding current homeowners will only increase the costs for future homeowners. And this article suggests we’ll become a nation of renters, and not just literally, but more symbolically:

The notion of bringing down the monthly payments for homeowners who cannot meet the obligations of their mortgage payments makes them simply placeholders in the housing market.

So, if a homeowner’s payment is reduced but they’re paying on a house that will never reach the value it was in the beginning, they’re essentially just renting. I guess so, but we do that all the time with car-buying. Cars depreciate as soon as we drive them off the lot. People who bought houses took the risk that the value might go down. We’re just used to living in a world where home values generally keep going up.

I’m sure you have your own take on this. I’d love to hear it. I’ve been trying for a while now, but I can’t seem to figure this whole thing out by myself.

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