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An increasing number of real economists (excluding anyone associated with the New York Times and the Washington Post) are publishing articles arguing that the problem is twofold:
1) A significant number of these underwater houses are owned by people who have no business being homeowners. After paying (or not paying) their mortgages, they have ZERO disposable income. All their "savings" (such as it is) are tied up in one asset -- their house. Any knowledgeable investor will tell you this is stupid, if not insane.
2) Government meddling in the market is not only postponing the inevitable further decline of the housing market, until it reaches bottom, it is exacerbating an already bad situation. HARP, HAMP and similar exercises in failed Keynesian economics are merely throwing good money after bad. The problem is, the money being thrown away is the TAXPAYERS'.
I think they are simply writing 'faux- fixes' at will. I'm no economist but they just can't seem to get it right. They seem to be trying to desperatly stick band-aids all over the problem without proper gauze or ointment.
Loans of any type should never have been made easy to obtain. I deplore taxation very much but putting your own domicile in hock is far worse.
I think the only way out of this mess is to allow each individual account to be taylored to its own situation. One family may be able to afford one more dollar than another. Another may not need one more day to make a payment. Both parties involved should be the only ones allowed to change the rules of the contract and the lenders do indeed need to bend in the wind. The borrowers had to 'bend' in the beginning. Now its time for a gesture of respect from the service providers.
Excellent subject my friend!