The $26 billion mortgage settlement announced recently has several shortcomings. It doesn’t throw any banksters in jail, although apparently that’s still a possibility down the road. It won’t put people illegally foreclosed back in their homes, and the roughly $2,000 such people may get is not going to be enough for a down payment for a new place. It only covers some mortgages. And previous mortgage assistance programs have helped far fewer people than they should have, so there is reason for some pessimism.
I think the main reason behind the lackluster push for something better has its root in the widespread notion that people who are in mortgage trouble deserved it. As such, there is “philosophical opposition” to helping people who are underwater. I understand the knee-jerk belief that anybody who bought a house they can no longer afford is solely responsible for their predicament, but it only takes a second of reflection on that belief to see how very, very wrong it is.
It’s as if people forget the housing bubble. Everybody was buying homes they couldn’t afford, and for a while, it was working just great. Unless you are such a stoic that you buy your houses with nothing but cash, it’s nearly impossible to not believe, as everybody else did, that perhaps this economy was different and things would work out. Which they did, for several years. You don’t throw the biggest, longest party in history and get mad that everybody decided to join in.
The housing market, and by extension the economy, would be in much better shape if we just admitted that these home valuations are not realistic, and wrote down mortgage balances to reflect this. Would there be winners and losers in this scenario, and would that be “unfair”? Yes and yes. Let’s remember, however, that life is not fair. To do further damage to the economy, and people’s lives, over worries about teaching these homebuyers a lesson is also unfair, and it leaves a whole lot more people worse off.