Newspaper Page Text
SUNOAV, JUNE 3,2012
Its time for banks
to explore option
of mortgage relief
By Nicola Galinas
los Angelos Times
This month. Bank of America s.ud it
w ould start reducing mortgage balances
by $15(),(XX) on average for up to
2LXUXX) underwater homeowners behind
on their payments. The biggest news was
the dog that didn’t bark Few pundits or
Internet commenters criticized the pro¬
gram as unfair to people who didn’t take
on more than they could afford. The
apparent evolution of public opinion is
healthy. It’s just too bad that it took so
long.
In the early years of the housing and
credit crisis, a few academics suggested
that the way to fix a crisis caused by too
much housing debt w as to reduce some
of that debt
The facts were on their side In the
decade before 2(X)7, mortgage debt more
than doubled, adjusting for inflation, to
S 10.5 trillion, according to the Federal
Reserve. After the bubble burst,
Americans couldn’t keep paying all of
that debt and support the economy with
retail spending and investments in busi¬
nesses. They still can't.
Yet no mainstream politician.
Democrat or Republican, embraced the
idea of forcing banks and investors to
admit reality on thetr bad loans.
Why '’ Public opinion was rabidly
against it. A commenter to a January
2009 New York Times blog summed up
the Zeitgeist in asserting that "people who
(bought) more house than they can afford
... ARE idiots."
Plus, politicians had a seemingly sound
reason to reject the idea. Allow mg
Americans to get a do-over on mortgage
debt would encourage more people to
take undue risks, figuring they would get
the same bailout. Economists call this
"moral hazard.”
Furthermore, if hanks and investors
had to take bigger losses on mortgages,
they would see the business as riskier and
raise interest rates for everyone else to
make up for that risk.
But now, such comments and econom¬
ic reasonings have been far fewer. That’s
a good thing.
The moral-hazard argument against
principal write-downs was always faulty.
During the housing boom, the financial
and real estate industries and popular cul¬
ture — TV programs such as “Flip This
House encouraged Americans to buy
a home as a speculative investment
But when you lose money on an invest
ment. it’s perfectly rational — and not
immoral — to cut your losses
In the business world, it’s common for
lenders and investors to reduce the value
of debt owed when the value of the asset
backing that debt has declined It happens
all the time voluntarily in commercial
and rental real estate, and involuntarily
through corporate bankruptcy
Lenders don’t reduce the amount of
money they ’re owed because they 're nice.
They do it because it's economical They
don’t want to be stuck managing an asset
that's lost value.
New meaning for average
At one time I thought of
myself as an average
American citizen. The
more I considered the
definition for this phrase,
the more questions began
to form in my mind. At one
time "average" meant that
fathers went to work and
moms stayed home anti
tended to the children. With
World War II, women were
needed in the workforce.
At one time, families had
one vehicle and maybe a
truck used for work
purposes. They kept the
vehicle until it stopped
running or the loan was
paid off. There was no need
for large closets in homes
because the latest styles
were the same year after
year and clothes were worn
daily and spruced up for
Sunday
Average Americans
could count on fingers of
one hand the number of
vacations they ever had and
a trip once every two or
three months was never a
possibility. A visit to
relatives would be
somewhere nearby on
reunion Sundays, when
traveling tcxik an Ixxir or
less The price of gas was
still a big expease at less
than 25 cents a gallon.
Average Americans
would vote in all elections.
Politicians were never
accused of ethics
And it’s still iu>t the best time for a
bank to be taking over hundreds of thou¬
sands of houses. It may be cheaper and
faster for BofA and others to keep exist¬
ing homeowners in place by cutting
them a deal.
As for the issue of whether mortgage
principal reductions raise costs for every ¬
one else in the long run: It’s not that sim¬
ple.
The housing and credit bubble and bust
occurred in part because mortgage bor¬
rowing was tint cheap. lenders and
investors seemed to think there w as no
risk. It would not be a bad thing if lenders
and investors came to understand that
lending money against a house is risky —
and charged borrow ers accordingly. Such
an adjustment is normal in a tree market.
Slightly higher interest rates would dis¬
courage people from borrow ing more
than they can afford.
Moreover, the more pressing problem
is not that mortgage interest rates may be
too high someday but that they are too
low nght now The government has inter¬
vened massively, reducing rates to below
4 percent. President Obama and Federal
Reserve Chairman Ben Bemankc encour¬
age low rates because they w ant people to
flock back to the housing market — cre¬
ating artificial demand and keeping house
prices from falling further.
That would create a new generation of
borrowers who will find themselves
underwater in coming years w hen the
government stops propping up prices
That's moral hazard using unwitting
new people to bail out the old
The best way to avoid that risk would
he to allow housing prices to find their
bottom now Such an effort is helped by
mortgage-principal reductions, as they
reduce uncertainty over future foreclo¬
sures
As for w hy the unfairness charge is on
the wane, people womed about a may be
slowly learning that the more acute prob¬
lem is empty houses. In a levser-of-two
cvils world, maybe it’s better for your
neighbor to get a break on his mongage
than to have another hulk rotting nearby
Then. too. people worried about unfair¬
ness may look into defaulting to get a
mortgage reduction but find it’s not so
easy There’s a lot of anxiety, and not all
defaulted homeowners will qualify. For
many people, it may not he worth it
That's an economic choice, not an exam¬
ple of fairness or unfairness
A change in the attitude toward mort¬
gage-principal reductions is good for the
economy.
We've always been a nation of people
who take risks, and a nation that does not
throw people in debtors' prison when
those risks don’t work out. People make
mistakes, or are just plain foolish or
unlucky In a misguided attempt to pun¬
ish such people, we imprison the entire
economy in hundreds of billions of dol¬
lars' worth of debt shac kles
Nicole Gelinas is a contributing editor to the
Manhattan Institute's City Journal. She
wrote this for the Los Angeles Times.
i_ ML
JULIANNE BOLING
Columnist
violations, they simply
were not elected again in
most cases. Political parties
were just that, parties of
people who stayed the
same year after y ear, no
switching was acceptable,
ami they had a plan of
action.
Of course, t lie re were
always rumors of
unfaithfulness, pregnancies
before mamage vows, but
these were frow ned upon
and not talked about in
polite company. Girls who
were wild soon fixind
friend.* in short supply ami
boys who were wild could
only get dates with wild
girls
Men ami w omen w ho
served in the armed forces
were treated with dignity
and respect. Teachers,
preachers, dnetorsh and
professional people were
held m the highest esteem
and that was earned esteem
or was soon lost There
were few bullies in school*
and children who were
different were still treated
with kindness and respect,
or else action was taken by
those in charge.
It is hard to describe the
average American citizen
these day s. Probably a two
car family with both
parents working and
children in day care am)
after school care daily
They probably live in a
house w ith a mortgage so
high that paying their credit
card bills each month is
impossible
They arc addicted to the
latest and most expensive
toys of technology and
waiting for the next
innovation
Die only time the
average American citizen
may vote is if it is
convenient and then they
choose the recipient of thetr
vote based on little or no
knowledge of
qualifications Many will
vote for a party, never
knowing what that parly
means to them.
A quote that keeps
coming to me is the one
that stills seems to be
questionable: “If you stand
for nothing you will soon
find you will fall for
anything." Start asking
questions’ Are you an
average American citizen
or are you concerned about
the future of America?
Cumming resident Julianne
Boling's column appears
each Sunday
forsythnrwi.com | FORSYTH COUNTV
ALMOST RECENT GRADUATES HALF OF MS AVim E ffl H ms
HAVE- BEEN UNABLE
TO FIND FULL
EMPLOYMENT.
v: -r
'
<-v * -
* ,1 N
'
*
m x.V.
if ' m K $
s
. nM ■9 r 4 'A', >T;-Sc' 4 ' ‘
KSRK* i
its a f
6T3ND0RD
JEtai ceu-pvdne 1
OOKTRaCT.
I
T S B I
\ WUJNGA-'I l \
m oa-vftcuN&A V
T
llkWs^V.
■
^lr n 1*
v*e <sao ' 'V> not x
6 aacuTWrf*
(Safe to por wepo vrt
a vnock. om wa
XXX IR,
\
l
I 1
ui I
I
a
j
<3
NORTH GEORGIA
CHAMBER MUSIC FESTIVAL
rif North Georgia College & State University
i Friday, June 15 & 22
8:00 pm
t YU i Sunday, June 17 & 24
3:00 p.in.
Ml
CrcyU* Ar:r««ki, North t ;eorc ;i A
Aiiimk. ilircctiw 11X1.K a (• ST ATT I MVTRSrTV.
u f www.northgeorgia.edu/chambermusic For information and tickets, please visit
W
Gypsy Cl‘>p»y /\rt» Theatre I ounjdtmn Company ,v
v&
j
* o*
•i% St I * I >' # f
k .
* n
• W '«
% by *;* ♦ Frank . <v W L. U. Baum Lk. 1 I P{ ... Directed Musical direction by Mercury by Vr 9
with music and L Leigh Ann Shaw
lyrics ol the screen I m. fllij i|| Choreography by
version by ) Autumn Morganste rn
,y
x i
Wfy *
1 V
/ ,; i
r i. m
*June 1,2012 7
at The Cumming Playhouse
101 School St. Cumming, GA 30040
Thur.-Sat. 8:00 pm, Sun. 3:00 pm
770-781-9178 • www.PlayhouseCumming.com
7A