That could be one of the most intriguing, not to mention controversial, questions of the day. Congress and the rest of the government, especially president Barack Obama, believe that it is not the best solution and that everything, no matter the cost, should be done to minimize foreclosures. In other words, they are willing to sacrifice the many to save the few.
Don’t get me wrong, it sucks that people have to go through foreclosure, just like it sucks that a large percentage of American homeowners are upside down, owing more than their home is worth. The problem is that most foreclosures these days are happening to those whom deserve it. You heard me right, they deserve it. They likely have bought more home than they should have, over-leveraged themselves to get into the home, or simply didn’t plan for the worse. Creative financing is generally not the problem, nor mortgage professionals whom put them in those programs. Sure, there are some exceptions, but not the norm.
We can lay blame on a number of factors, much of which stemmed from our government to begin with. Other factors, and those which are more likely the causes of foreclosures, stem from the way Americans handle their debts, including using their home as an ATM machine and wasting away their equity instead of investing it. The bottom line is, no matter what got them to the point of facing foreclosure, allowing foreclosures versus the government “salvation” programs are likely the best solution and the quickest to get through the problem.
How can allowing a family to be kicked out of their home due to foreclosure be the best solution, even if undeserved?
When we look at the facts, we see Americans utilizing their homes as another method to utilize credit to purchase depreciable assets in their efforts to “keep up with the Jones'”. Having homes on the household balance sheet allowed them to take on more debt than they should have, not to mention inflating home prices far beyond their true value. Now, with home values crashing down and homeowners carrying large debt loads and little savings, their net worth’s’ are now negative. Foreclosures would allow them to write off that debt and bring their net worth closer to the zero mark, if not slightly positive.
I am not advocating that anyone whom can pay their monthly payments and are upside down should go into foreclosure, nor be allowed to do so. What I am saying is that allowing those whom are facing foreclosure to go through it anyway and not having the government try to “fix” the mess, would do more to help them than to keep them trapped in a home they can’t really afford anyway. And let’s face it, while foreclosures amount to millions of homes lost, they are a small percentage of homeowners, so why make everyone, including non-homeowners pay for saving the few?
Allowing foreclosures will actually help the credit markets as well. Some homeowners may be able to get loan modifications completed, but even most of those end up facing foreclosure down the road and with the number of scams out there, it is difficult at best to not waste their money. The complications with loan modifications especially come about when their are two or more liens on a property, rendering the more junior ones worthless. Since the lien is worthless, there is no incentive for that lienholder to do a modification, tying up the homeowner’s ability to do so. In a foreclosure, the slate is wiped clean, speeding up the process versus delaying the inevitable.
As for market recovery, foreclosures will aide in speeding the process. By allowing properties owned by the financially weak to move into the hands of the financially strong, the market can begin to sustain itself again. Eventually, those whom were foreclosed upon will learn from their mistakes and be the buyers of the future, only this time in a better financial position, thus keeping the markets solid for a long time to come.
Homeowners that are facing foreclosure have an opportunity to learn and develop better financial habits, especially when it comes to overextending themselves. I wonder how most homeowners whom have been foreclosed upon would answer these questions…
Do you feel sorry or are you relieved?
Has your stress level gone down?
Did you learn something and are you improving yourself as a result?
The government needs to stop the insanity, providing archaic attempts to solve the housing crisis. If we look at history, government interactions do nothing but slow the process of recovery down and cost taxpayers exuberant amounts of money. Again, the actions by our government in the form of “stimulus packages” is doing nothing for the greater good, merely bringing increased sacrifices to the multitudes in a vain attempt to save a few that likely would be better off without any assistance.