I
don’t ordinarily like to publish long letters, but this one is worth the
space because it captures the mood of a sizeable segment of the
population.
“I'm upset by your recent
article advising people having trouble with their mortgage, how to get
it modified. In my view, they should be allowed to take their lumps…
My first home was a single
wide trailer that cost $18,000, which was all we could afford at the
time. We have upgraded three times since then as our family and our
income have grown, but we never paid more than we knew we could
afford…We have never missed a mortgage payment.
I am tired of hearing the
sad stories of people that over bought because they thought that house
prices would rise forever and they would get rich. Their garages were
full of boats and other toys that I don’t have because I can’t afford
them…
It drives me nuts that
these people can now take advantage of programs that reduce their
mortgage payments, and I’m paying for it with my tax dollars.
The government should aim
to promote good behavior, with programs that benefit homeowners who have
played the game of finance the right way. Instead, Government is helping
the ones who were greedy, or stupid, or who lived beyond their means.
I'm also tired of the
media, including your articles, supporting these bad Government policies
by playing up how rough it is for these people whose lavish lifestyles
have gone awry.”
It is
hard not to have some sympathy for this view. The measures Government
has taken to deal with the financial crisis are indeed unfair, rewarding
many who don’t deserve it while burdening the many innocents who must
finance it. So why do we do it?
In
large part, we do it because inaction that allowed the crisis to run its
course, along with the major depression that would accompany it, would
not punish the guilty alone. It would also destroy the livelihoods and
disrupt the lives of millions of others who have done nothing to deserve
having their lives disrupted. Every foreclosure we can prevent now, even
if the borrower we help is a greedy speculator or a profligate
spendthrift, is one less house being thrown on the market, which
ultimately will prevent the layoff of 3 people who would otherwise lose
their jobs. Note: the number “3” is my guess, any econometricians among
my readers are invited to correct it.
Furthermore, many consumers having mortgage troubles today were not
greedy or extravagant, their only character deficiency was a lack of
foresight, which afflicts most of us at one time or another. In
particular, they didn’t anticipate that house prices would plummet as
they have, I didn’t anticipate it either. The price drop has been an
underlying or contributing cause of most mortgage problems.
It is
interesting that the issue of deservedness does not arise in connection
with aid to banks, auto companies and other firms. Most would agree that
the firms getting the aid are the
least deserving, but there is a grudging acceptance that this is a
necessary price to pay for maintaining the viability of the system. When
it comes to individual borrowers, however, the systemic implications are
ignored, perhaps because the fate of any one borrower will not affect
the system.
Policies that attempt to limit assistance to deserving borrowers,
however, do impact the system because large numbers of borrowers in
trouble are denied help. This is certainly the case with the
Government’s program of assistance for loan modifications, which
excludes investors – those who don’t occupy their homes. The rationale
for viewing investors as non-deserving is extremely weak – most are
small businesses and include many members of the armed forces. But even
if investors were not deserving, foreclosing on the homes they own has
the same negative impact on the system as foreclosing on the homes of
the deserving.
There
is another reason to help homeowners with mortgage problems, even when
the problems are of their own making. When we replaced debtor prisons
with bankruptcy laws, we became a forgiving society that offered people
who had erred second chances and fresh starts. It is a long-standing
tradition that has served the country well.
In my
view, the valid rap against the current Government programs to curb
foreclosures is that they have been too timid to have the major impact
we need. That timidity seems to reflect a misplaced concern by
policy-makers that Government not appear to be assisting undeserving
borrowers. As a result many deserving people are going to lose their
jobs.