While the administration continues to talk about modifying mortgages, about “shaming” lenders and servicers who fail to perform to some pre-determined standard, an 800 pound gorilla called negative equity is lurking in the corner. At some point the gorilla will pounce and crush those who stand in its way. It will crush already depressed housing prices; and it will do so because no one has faced the reality of its existence.
Negative equity, a beast that has decimated the wealth of millions of homeowners across the nation, must be confronted as an integral part of the modification process; not doing so invites more foreclosures and will wipe out the remaining equity of those who had been spared from the ordeal. But if this danger exists, why is everyone avoiding it? Why do the politicians establish mortgage modification programs that ignore one of the core problems of this housing crisis?
Politicians by their very nature avoid complex or controversial issues that might endanger their political power, and look to short-term or temporary solutions for problems that demand more bold actions. This issue demands such boldness and leadership. Of course unemployment is the other major issue, and while it’s much more difficult to solve, resolving the problem of negative equity would make it easier for those whose income has been lost or reduced to remain in their homes.
What we need is a leader who is willing to address Congress and the nation; to lay out the cold, hard facts and to present a program that would require lenders to reduce principle balances so they are in line with current appraised value. Would that be unfair to those of us who have seen our homes value drop, but are still making our payments? Who cares? The issue has nothing to do with fairness. Life isn’t fair.
Dramatically slowing the foreclosure process would certainly benefit all who remain in their homes, by keeping neighborhood values from dropping even more. And it would bring an end to the chaos that will continue to disrupt the housing market until home values have fallen so much that everyone suffers.
I’m not a fan of government intervention. Government by its very nature usually creates problems equal to the ones it solves; but there is nothing “normal” about the crisis we face. Unless something is done to deal with the problem of negative equity, we will see more foreclosures than many could imagine; and they will continue for years, depressing the housing market and disrupting the economy.
The issues involved in dealing with negative equity are complex and will, of necessity, demand showing preference for one group over another, but to ignore the problem is to invite disaster for all.
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