I try to cut folks like Ben some slack, as they’re trying to steer a huge, lumbering ship that takes years to nudge the wheel even a few degrees to one side or the other, and are often hamstrung by policy decisions made many years earlier by predecessors that they had no control over. But statements such as these are just pretty damn hilarious:
“One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,” Bernanke said.
With low or negative equity in their home, a stressed borrower has less ability — because there is no home equity to tap — and less financial incentive to try to remain in the home, he said.
Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. “They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again,” Bernanke said.”
Are you kidding me? While I appreciate the linguistic hedge of “relatively more effective” (i.e. slightly better than worthless, wasted efforts…like, uh, you know, not quite worthless?), the rest of that is pure batshit crazy talk. Lenders should write down the principal so that stressed borrowers suddenly have equity then can tap into? Isn’t that more than likely what got them “stressed” in the first place?
I mean, Jebus. That’s your best “relatively more effective” solution? To be fair, yes, I do see your point as far as the benefits of people having some equity in their home, as far as a deterrent to simply walking away. But that’s an incentive to such a tiny slice of borrowers facing foreclosure (and remember that that is a tiny slice of a tiny slice, as the vast majority of mortgage are being paid promptly and on time) that it’s almost ridiculous to mention, especially when you’re asking banks and lenders to just give up and write down the principal.
Yes, indeedy, if the property does go to foreclosure it’d essentially amount to the same thing, as the banks will never recover the full amount of the principal owed, but what bank or lender would agree to that? If you can’t afford the house, you can’t afford the house. Why we continue to delude ourselves by pretending that handing people free money or equity will fix the situation, I do not know.
No related posts.