Everyone can support "give someone a break", but I'm a tad cynical about granting a for-profit agency the immunity from the felonious activity that caused us to be talking about giving someone a break.
But here's a different sort of logic that I'm seeing more frequently: might as well suffer a little now to avoid a lot of suffering later.
It started a few months ago when I wrote about a government promise that had effectively become worthless. You can offer cheap healthcare to military retirees all you want, but when the doctors won't take the government's reimbursement rates then it doesn't matter what the govt promises you.
You can offer lifetime COLA pensions to military retirees, too, but when the govt runs out of money then it doesn't matter what's been promised. The authorities may wring their hands in despair, but the fact is that the deposits stop showing up in people's checking accounts. I'm writing that post now.
Seems like a similar situation here: if you give these homeowners a break now then it'll cost you 30 cents out of your taxes. If you wait until nature takes its (seemingly inevitable) course then it'll cost you a buck in foreclosures, neighborhood declines, violence in the streets, extra police protection, doom & gloom.
However there's that nagging little detail about taking care of special interests in the name of motivating them to "do the right thing". I don't think amnesty makes them any more capable of doing the right thing next time home values take off.
I'm sorry for those people who were tricked into buying homes with unaffordable loans. I'm sorry for those who "did everything right" and ended up holding an upside-down mortgage. I'm sorry that they don't have enough room for growing families and that they can't upgrade. I'm sorry their contract with the American Dream has been violated.
But let me tell you a story.
In 1989 my spouse and I purchased a [-]decrepit & abused property[/-] home that took every last nickel out of our pockets. (I personally stuck my nose into 50 homes to find one that we could actually theoretically afford.) The mortgage payments were $1824/month. By 1990 we'd put enough sweat equity into the property to add 50% to its value, although a rising real estate market certainly helped with about half of that. By 1991, after DESERT STORM, the Japanese equity bubble popped and (most) Japanese citizens stopped buying Hawaii real estate. The Hawaii real estate bubble also popped, and nearly as big as today's Las Vegas or Florida. By 1999 our home's value had been cut by 45% off the peak-- and 15% less than what we'd paid for it.
In 1992 (while our property value was starting down from the top of the roller-coaster ride), we'd both been promoted (higher salaries) and back then the govt rules for military housing allowances effectively said "spend it or lose it". In order to spend our govt subsidy, we refi'd that 30-year mortgage to a 10-year mortgage with a fixed $2631.97/month payment. It'll be clear in a bit why I remember that number so well.
In 1994 the military wouldn't let us stay in Hawaii. During the biggest drawdown since WWII, there were no billets for our current ranks & specialties. We moved to San Diego, which had a much lower housing allowance, yet we spent all of that housing allowance to afford the rent on a SD home that was nowhere near the quality of our Hawaii home. We spent the next three years trading our home-improvement sweat equity on that property in exchange for no rent increases (which we couldn't afford). We saved the landlord thousands of dollars in repairs and raised its value by at least another $25K. This was in addition to our full-time Navy jobs and raising a toddler but, hey, we enjoy home improvement.
Meanwhile we were still paying the mortgage on that Hawaii property while grossing $1600/month in rent, minus all the usual landlord expenses. You can do the math on that one.
Military homeowners could tap into a number of programs like the "Homeowners Assistance Program" available to help out owners of distressed real estate. (The values of Makaha homes were cut almost two-thirds by the closure of a nearby military base). We could have negotiated with the lender. We could have obtained all sorts of forgiveness and help.
Instead we chose to suck it up and pay the damn mortgage. In fact we actually paid it off in the late 1990s, about the same time that our home's value hit rock bottom.
Did it hurt? You bet. We had to change our lifestyle, our budget, our spending, and just about everything. Having to stare that payment in the face for 39 consecutive months made a powerful difference in our behavior.
You know what? We learned to dramatically cut our expenses and to reduce our "needs" to our essentials while practically eliminating our "wants". We knew that we'd never again overextend ourselves to such a risk. That mortgage payment didn't put us on the path to ER, but it certainly showed us how to become financially independent.
I think lenders and homeowners should be allowed to do the math to decide whether it's worth refinancing an underwater home. In most cases it's a good idea. In fact, I bet that it's a good enough idea that there's no need to let the lobbyists persuade us to award amnesty to the criminals who helped cause this problem in the first place. This is one situation where I believe a small rule change or two could help facilitate an economically sensible transaction, but there's no reason to go overboard to the point where we're subsidizing it with our tax dollars.
'We have X% of loans that are underwater in the portfolio, so good luck with getting your money back'.... or will the gvmt just hold them and not package them at all... and from what I saw last night on the news, ONLY underwater loans qualify, so that would be 100% of underwater loans if they all went in the same pool...
