Can we really rescue homeowners?

The International Herald Tribune has an interesting article that lays out this current “housing crisis” in more simple terms. Everything that I have read has said a little bit of this but this explains it so much better. First, the two major groups of homeowners “in trouble”:

“The first group is made up of people who, for whatever reason, will not be able to make their monthly payments. Some took out mortgages with initial monthly payments that they couldn’t afford. Others took out adjustable-rate mortgages whose monthly payments have ballooned to an unaffordable level. Still others have lost their jobs.

The second group is quite different. It is made up of people who are at risk of foreclosure not because they won’t be able to keep up with their monthly payments – but because they may decide they don’t want to continue making them. These are the homeowners who are “under water,” which is to say their houses have lost so much value that they’re now worth less than the underlying mortgage.”

This is important to understand because a big lump sum of $700 billion dollars that no one is for sure where it is all going is hard to understand. Obama and McCain have said they are going to help these people but are these just campaign promises? The President and Congress’ plan hasn’t actually said it wasn’t going to do anything for homeowners. Instead, the focus is on the “credit market freezing.” This is for future homeowners, which could possibly cause the top two to happen again.

This is what we really are looking at:

“Homeowners who are under water will have an incentive to think of their homes in cold economic terms and threaten to walk away, while those who can just barely afford their monthly payments will have reason to slide into delinquency. Multiply 19 million mortgages by a couple hundred thousand dollars, and the government could be left with $4 trillion in obligations.”

So can we do this? Do we even want to do this? It is hard to believe we have become such a nanny state that we would bail people out who have just lost value in their home. Sure, homes are suppose to be an investment but if they can afford it then they should pay it. Investments can go up and go down and it is not likely that it will stay this down.

Some people could make an argument we need to bailout those who got mortgages that they can no longer afford. This was the Fed’s problem but again like it says above. This could create a slippery slope of nationalizing the home mortgage market. So when Obama and McCain continue to make this claim that they can help first can we do this and more importantly is this what we really need?

The rest of this article is here.

~PCCapitalist

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Published in: on October 23, 2008 at 10:26 pm  Leave a Comment  
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