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http://timiacono.com/index.php/2010/06/01/a-homemade-mortgage-modification/
Another article that goes along with Matt's really well. It discusses mortgage modifications (something that has been put in place to help homeowner's in foreclosure). I don't think that it is a good way of helping, but it is a step in helping - but are people using it for the right reasons??
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ReplyDeleteThis is ECON 101. People respond to incentives. While I think this is a terrible situation and will ruin people's credit ratings I can understand why so many Americans are following this option. If you know you're going to lose your house anyway why waste your money continuing to pay your mortgage? Although I wish these people would move out and start saving instead of spending their money to "Go out to Outback for steak", you have to admire their creativity for working the system.
ReplyDeleteThe Wall Street Journal printed a related article in February of this year about the recent decline in home foreclosures.
ReplyDeletehttp://online.wsj.com/article/SB10001424052748704657704576150293081461516.html
According to the article, delinquencies fell, but the number of loans in foreclosure were still at extremely high levels. This is credited to banks who have "slowed their foreclosure processes late last year to fix document-handling problems that surfaced in September." This makes me wonder how accurate all foreclosure data may be as a reflection of actual foreclosure levels.
The graph provided in the article presents a great graphic reflection of how sever the mortgage crisis became throughout the recession, more than doubling by the 'end' of the recession in 2009, as declared by Bernanke.
As far as mortgage modifications, my feeling is that this is a short-term solution, which we all know tends to lead to greater negative externalities in the future. I'm not sure what the solution is, but I don't think this is it. While homeowners will have a period to prepare and some peace of mind for a moment, they're going to have bad credit and will eventually have to face the music.
As a creative solution, I was inspired by the joint contribution of Kalamazoo churches and congregations (also worked on by Hannah) to come together and pay local residents' heating bills during the recession. I wonder if some sort of philanthropic solution is possible in this scenario. Opinions?