Home sweet home

So, the Obama plan to prevent foreclosures.  What to make of it?

Well, the obvious point is that it represents a massive transfer to borrowers from lenders and the rest of us.  As far as I can tell, there is no penalty for having borrowed more than you could realistically afford to repay--not so much as a speck of dirt on the credit report.  The administration's release talks a lot about "responsible homeowners", but very few responsible homeowners have payments that amount to 43% of their monthly income.  There are exceptions, of course, such as people who have just lost their jobs, but most of the people being helped are, nearly definitionally, people who bought more house than they could afford in the belief that prices would keep rising indefinitely and they would make big bucks.  It was leveraged investing, just like a hedge fund, and often at the same kind of leverage ratios.

It's hard to muster too much sympathy for lenders who made loans to these speculators, except of course for the fact that "borrower-friendly" rules like the ability of bankruptcy judges to cram down mortgages means that those of us who have not been speculating in real estate get to pay higher mortgage rates when we do buy.  Expect Chapter 13 bankruptcy to become extremely popular over the next year or so.  Also expect your own credit card lines to be cut and interest rates to rise as lenders attempt to minimize their exposures to those bankruptcies.

Obama's in a tough political position.  If he simply gives money to mortgage lenders to compensate them for modifying bad loans, taxpayers will scream.  On the other hand, if he further impairs their balance sheets, it will cost the taxpayers in other, potentially much worse, ways.  He chose the politically easy route. Me, I think if we think homeowners should get free reductions in their interest rates, we should pay for it, not make a law forcing someone else to do so.  But this is why I am a reactionary bourgeois tool of the capitalist system.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In