December 17, 2007
Fun in the Market Bed
I've been a bit frustrated about the push to prevent mortgage foreclosures by forcing lenders to restructure their loans.
Don't get me wrong being evicted must suck. (For the record I had an eviction notice served on me once, it nicely happened to coincide with the day I was already planning on moving out…) But, there is the fact that if you signed an agreement that you cannot fulfill you should pay for the consequences of it. This goes for the borrowers who borrowed beyond their means and the originators who wrote the bad loans that they have to repurchase.
The fact of the matter is the market is working. People made commitments that they can't make. The market mechanism for fixing this is foreclosures. It hurts for both the lenders and the borrowers.
Where the problem comes in is that having unoccupied houses has its toll on a community. Instead of attempting to circumvent the market in this case, I think really there should be some controls on unoccupied properties. Things along the line of security fees that are paid to the police, an additional property tax to offset the loss in sales and income taxes, etc. Really governments shouldn’t try to modify the mortgage terms as much as they should implement market costs that make lenders act differently and more quickly.
Here is an interesting story that I'm sure is being played out all over the place, I have a former coworker who wants to buy a house, has made a reasonable offer and the bank that currently holds the title to the place cannot work through the paperwork.
Bottom line you should lay in the bed you made.