I know we all hate Obama, but what they are trying to do is slow down / halt foreclosures.
The thought process is that until home prices stabilize, the banking industry is in trouble.
Even though it is good policy to avoid personal debt, business's depend upon leveraged money (the banks) to keep going.
So, stopping foreclosures stabilizes home prices, which stabilizes banks, which allows them to loan to business's, which, hopefully, will keep us out of a 30 year economic decline.
No, it maintains the bubble and kicks it down the road. Keeping people in homes they cannot afford is putting a bandaid in an amputated limb.
Home prices will stabilize when supply and demand coalesce, that's how capitalism works. Stabilizing home prices above the level where young people can afford to buy them accomplishes what economically?
Except for the transfer of wealth from folks who bought what they could afford to people who bought what they could not afford of course.
“The thought process is that until home prices stabilize, the banking industry is in trouble.”
My point was that home prices are not going to stabilize because they are over-mortgaged. Example: A home was sold two years ago in a development that still has on-going new builds, sales and starts. The owner owes $150,000.00 first mortgage and $25,000.00 on a second. The precise home except it is new is being marketed for $150,000.00 by the builder with attractive mortgage terms. The owner is trying to sell the property for $175,000.00 to simply cover the mortgages and walk away. Problem, a buyer can by the same home for $150,000.00 from the builder. OR, in this same development there are probably 25 homes sitting empty because the owner turned key and walked away, the properties are in foreclosure, so a potential buyer can offer the mortgage company a short sale and probably buy the existing default property for $130,000.00. It is a noble thought to stop foreclosures but it is not just the first mortgages that have to be negotiated.
Inherent in PROFIT is RISK. If there is no risk, there is no profit. If there is too much risk, there is no sense in lending, as there will be no profit.
Making the banks swallow more hit on defaulting mortgages =more risk. How will that free up lending?
The bank is already getting saddled with a property that is liened at up to twice it’s current value. How does it help them to be prevented from reclaiming even that from their losses?
This is like a game of musical chairs were the “loser” gets to stay in the game and just remain standing. Then the last guy with a chair is declared the loser and thrown out of the game.