There’s still plenty of noise circulating about the “Hope Now Alliance” plan—both in the “it doesn’t go far enough” vein and in the “it doesn’t help avoid a market crash” class. However, an opinion piece in the New York Times by Paul Krugman caught my eye.
Although the column has a bit more of a “heaven help the poor consumer who didn’t consider the consequences…” tone than I’m comfortable agreeing with, there is one observation that merits highlighting:
This is supposed to help investors, because foreclosing on a house is expensive: there are big legal fees, and the house normally sells for less than the value of the mortgage. “Foreclosure is to no one’s benefit,” said Mr. Paulson in a White House interactive forum. “I’ve heard estimates that mortgage investors lose 40 to 50 percent on their investment if it goes into foreclosure.”
But won’t the borrowers gain, too? Not if the planners can help it. Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away.
You know; that would be illustrative of the societal cynicism some of us seem to feel towards Washington these days—and the White House in particular: a program, spun as aid, that can be viewed as seeking to bolster the portfolios of investors by keeping the serfs attached to their properties for a bit longer than they would otherwise be….
I realize that I could be coming across as a bit overly capitalistic on the mortgage mess. And, while it’s true that I’m not happy about the prospect of directly or indirectly subsidizing some bad decisions / bad bets made by others, I would be remiss if I didn’t mention that I can easily believe in there being plenty of schemes in play to take advantage of borrowers in trouble. For example, consider this report, which made the local broadcast news circuit about a month ago (from WBIR):
Homeowners facing foreclosure are being warned that some companies are preying on borrowers facing financial distress.
According to a new study from the University of Iowa, questionable fees and claims were added to half of the foreclosure cases they examined.
One lender claimed that the borrower owed $1 million when they actually owed $60,000.
You’d think that there’s plenty to be done to clean up some of the dirty tricks some lenders may engage in, as well as seeking to curb some of the craziness/usury that lead us to this point in the market, without the government attempting to prolong the inevitable.