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Aug 12

Time to stop subsidizing home prices

Posted by Stephen Taub in Riskmortgagesmortgage foreclosures, line of credit, home equity loansCash

Stephen Taub

The report in the New York Times today about the huge amount of home equity loans that have been written off or barely paid back is very disturbing, and a stark reminder about a major reason the entire globe continues to feel the effects of the mortgage crisis.

It is also a reminder that this crisis was not just caused by sub-prime mortgages, but also by greed among the many people who took out the mortgages and loans to buy boats, luxury cars, extensions on their homes and expensive colleges.

According to the Times, lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, and a total of $7.88 billion in the first quarter of this year. Even more disturbing: Lenders generally only get 10 cents on the dollar when they are even able to settle through legal action.

Yet, now there are reports the Obama Administration wants to continue to bail out these overextended borrowers and the greedy; The old, take from the responsible and give to the reckless.

However, if the Obama administration as well as the banks decide to stop being enablers and let these adults face the consequences of their actions, we can finally jump start this economy and restore sanity to the markets in one shot.

The housing industry is in a three-year slump even though every day mortgage rates drop to yet another new historic low. They are now below 4.5 percent. Incredible.

If the enablers would let those who can't pay their mortgages or greedy home equity loans to simply default, then housing prices would fall to their natural valuation level and the system will wash out.

Then, the new generation of potential homebuyers who have been sitting on the sidelines for three years could step up, finally able to afford to purchase a house whose current "subsidized" price tag is still out of reach.

This would be a boom for banks and other financing firms, real estate agents, moving companies, furniture companies, appliance companies, and others that would benefit from a revitalized housing industry.

It's time for the adults to take over-both at the lender level and the borrower level. Then we can see this economy recover.



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