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Ed Morrison · Dealing with denial
February 14th, 2009
Business Week examines the lobbying strategies of the banking industry.
One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem.
How Banks Are Worsening the Foreclosure Crisis
Last 5 posts by Ed Morrison
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February 15th, 2009 at 1:26 pm
Ed, this is a complicated problem. Here are some additional thoughts.
Mortgages in the U.S. are non-recourse, meaning that a homeowner can walk away from a legal mortgage contract and its associated obligations and leave the bank with the asset to dispose of. In other countries, including South Africa and Australia (which have English common law), mortgages are recourse, meaning that defaulters’ wages can be garnished if they fail to pay their mortgages. Not surprisingly, people in those countries tend to be more responsible in buying homes.
Any solution that gives something to people who aren’t paying their mortgages–whether it be lower principal and/or interest rates, loan forgiveness, or help making payments–hurts those of us who didn’t buy more than we could afford and are making our payments. That’s because the money to help those in default will be taken from us in one way or another–directly if the government taxes us to help them out, or indirectly if mortgage holders take large writedowns and offset the cost of that by charging the rest of us higher interest rates, insurance, and fees. If you’re in the mortgage business, it’s a poor business proposition to support a policy that will help 5-10% of your customers at the expense of the rest.
There’s also a larger principle at stake, which is the legal sanctity of contracts. If we as a society willy-nilly give government right to abridge private contracts (which is almost certainly un-Constitutional) what contracts and private property rights are sacrosanct?