Hey, how about those of us with school loan debt? Can we get in on this, too?

I only clicked on this article because I thought he looked like George Carlin. How disapointed am I.

I just love how he's telling businesses to suffer losses but at the same time doesn't want the consumer to as well. Even assuming 50% of all subprime loans were fraudulent (which is WAY too high), that means 50% of people are getting a break they don't deserve.

Hmm...so people are irresponsible with their money, buying more house than they can afford, and assuming interest rates would remain forever low, and this guy thinks we should just forgive portions of their debt...while smart people that got into reasonable mortgages have to pay the full loan? Same old same old in America...reward the lazy and ignorant and the burden of making up the difference falls on the few intelligent ones.

Yay! Reward the irresponsible!!!

But for people like me with AA Credit and a responsible lifestyle, no joy.

That's freaking great.

@QuirkyRachel: yes, yes, my decision to go to graduate school was even more foolish than homebuyers who signed up for gimmick loans. forgive my debt too!

Woo, I'm totally not paying my bills anymore because the government will just tell my creditors to forgive my debts!

Ferrari dealership, HERE I COME!

@Saboth: Amen! To those of us who did the right thing, intelligently, we get the FU.

My tune on this has changed 100%. This is total BS.

I'm sorry, but mortgage speculators that are losing their bet deserve no forgiveness from anyone.

Maybe I should just default on my house loan for 6 months, see if my bank will 'restore some equity'.

@Tux the Penguin: While I agree with you in theory, it doesn't make much sense to have one side out of a house and in the street while the other side is saddled with a property they can't unload because there are just too many in foreclosure. Reality trumps theory every time.

Eff you, Benny. Some of us responsible people want to buy a home...at fire sale prices.

Ok, I am torn on this.

On one hand, the banks are going to lose money if the homes go into foreclosure, so why not lose the money prior to foreclosure, keep people in their houses, and have a chance for payments to continue (instead of having billions of $ in houses on your books you can't sell).

On the other hand, banks would be giving away free money to people who got themselves into this. I bought my house in 2004. The value of it has may have gone down. Where's my free money? Do I get screwed because I was smart enough and responsible enough to get a 30 year fixed that I could afford?

Now, IANAE, so I may have to put my trust in people supposedly skilled and educated in such things.

@QuirkyRachel:

Seriously! I would be able to stimulate the economy a lot more if I didn't have a ton of student loans to pay.

@Saboth: In principle I agree with you. However principle does not always go hand in hand with practicality. Had it been a small number of people, and had little effect on wider markets, I'd be 100% against this idea. However, we're all being affected by the mortgage problem, so the question is are we better off as a whole with a plan like this or not? Not being an economist, I don't know the answer to that question.

so do I get to buy a house that I can't afford and then ask for forgiveness of the debt?

what a sham.

Bernanke is in complete denial. Will someone tell him we're in a recession already.

I'd rather see families out on the street. In the long run, it will be cheaper to donate to the homeless shelters and food pantries. In the meantime, maybe someone, somewhere will learn a valuable lesson about personal responsibility.

Also, might I propose a tax on ignorance and stupidity? It might be our only way out of this recession.

@Murph1908: Also, if these homes are foreclosed it hurts other homeowners and local government because that's property the local municipality is getting tax revenue from and having vacant homes would hurt surrounding property values.

I feel like it's a murky situation. That said, I know I couldn't afford a house/ condo so I haven't bought one.

@novelgirl: Ack, is NOT getting tax revenue from.

This solution isn't perfect, but it will do.

As for us who ARE responsible, we should be rewarded by way of tax credit, or mortgage rebate. Not saying this is perfect, but if the banks paid one month of your responsible mortgage, as a sign of appreciation for your great business, would you be happy?

If this solution works for you, write your congressman.

Gosh...

I have to actually earn money, manage my expenses and spend _less_ than i earn to afford to be able to pay down *my* principle, on a loan that i made sure i could afford.

WHERE'S **MY** ***PONY***?????!?!?!?!?!

.max

The best course of action to mitigate the negative effects of the mortgage problem might actually be some debt forgiveness (again, I don't know if that's the case). That mitigation might be rewarding those who made poor choices, but you just implement rules to keep the situation from happening again.

Saying "you made your bed, now lie in it" sounds nice in principle, it really does. But when you lying in your poorly made bed makes 100 other people have a very tough time sleeping in their beds, then something needs to be done.

This guy is supposed to be our head economist?

We. Are. Fucked.

I too am torn, because if foreclosures proceed, which are justified for fraudulent loans, then we all suffer, because the costs are higher, attorney's fees, court costs (our tax dollars pay those judges salaries). Apartment rents will rise, credit card rates increase to cover the losses due to bankruptcy, etc.

While I don't want to reward those who made foolish decisions, I also don't want the value of my home to decline by adding more unsold homes to the current inventory

Instead of a pricipal reduction, what about the banks issuing new 30 year loans with a balloon payment at the 30th year (instead of the common 5, 7 or 10 year)?

This allows the bank to retain the full loan value, reduces the mortagee's payment into a more affordable range, and presumably, the value of the home will increase enough over 30 years to allow the bank to recoup the equity at sale or refinance.

Perhaps restrictions would apply to limit the borrower's ability to obtain equity loans, to only the equity available after the balloon payment is deducted.

Those who did commit outright fraud (as opposed to those who just made bad decisions) should be prosecuted, which should always be the cause.

Does this make any sense to anyone?

@novelgirl: "Property values" are, for the most part, only a function of supply and demand. In other words, most of the "value" of real estate is not derived directly from the cost of the materials and labor that goes into building a home. If the demand isn't there to meet the supply, the value has already dropped. Nothing we do to prop up the market is going to really "fix" that problem. The proper fix is simply that homeowners lose equity. Period.

@Jaysyn: My thoughts exactly.

@dualityshift: Maybe they could force the banks to forgive some portion of debt on ALL their customers, not just the ones in trouble, if they are going to forgive any. That would make it so that they aren't rewarding bad decisions. But I don't know if that's actually financially feasible.

@bonzombiekitty: But when you lying in your poorly made bed makes 100 other people have a very tough time sleeping in their beds, then something needs to be done.

So, I have to be considerate of total strangers when getting my mortgage?

Those who say these people are scamming us all, think on that for a moment...

Do you think:
1. These people are smarter than everyone else?
2. These people knew the government would not let them lose their houses?
3. This process will continue?

No one could have seen what the government is going to do to 'fix' this problem. Anyone with that much forethought would have bought up as many houses as they could. I know I would have.

Letting these people foreclose, though not a great idea, is better than bailing them out. If the consequence of their actions is to get bailed out, what is the lesson learned?

I personally believe that anyone who has defaulted on their mortgage should be turfed out. Those scraping by, trying to do the right thing, (pay their monthly mortgage payment) should be the first ones helped out. Remember, not everyone stuck in this deal got in to defraud anyone (reward those who are honestly trying to keep up). In some cases, the mortgage holders are the ones who acted fraudulently.

@johnva: Considering the US Treasury allows a 7 to 1 debt ratio for lending firms, I can't see it being too difficult.

I work for a small bank and can see a time where no one will be able to obtain a mortgage. Banks aren't going to keep making new purchase money avaiable if they can't count on getting all of it back in a specified, timely manner.

@unklegwar: The part they are implying here is that forgiving the debt really isn't going to stop some people from having bad spending habits, so you're still better off with a great credit rating in the long run. If you're the type of person who would spend your tax rebate on a sports team-branded grill, for example, while 2 months late on a house payment, then this fix would probably apply to you (although it won't teach you how not to spend irrationally).

@dualityshift: No, I'm not saying that. I was trying to illustrate the point that all the people who got mortgages they could not afford is having a negative effect on everyone else. The "laying in the bed you made" is just letting all the people with mortgages they cannot afford lose their houses, and the "making 100 other people have a tough time sleeping in theirs" is the wider economic effects of all those people losing their houses.

Everytime there's an article on this, Consumerist boards seem to have the same old debate- forgiveness v. personal responsibility. So if some sort of debt relief/ bailout isn't the answer, and I ask this in all sincerity, what is, then?

I mean, it's great to chastise, but if this administration is proposing a bailout/ debt forgiveness, then my sense is there aren't a whole lot of other options.

@Asvetic: That tax is called the lottery.

@cmdr.sass: Spoken by someone who's never been homeless.

Why doesn't the Fed collect everyone's paychecks and manage the money for everyone? You could have a house and a weekly delivery of ramen.

@Saboth:

Amen. I had the displeasure of relocating during the peak of the housing bubble. My wife and I went into a traditional loan that we can afford and made a significant down payment - much of that down payment has been wiped away by the collapse of the market, where are the bleeding hearts weeping for folks like me?

@lightaugust: A bailout will help people who have homes at the expense of people who are looking to buy a home, by keeping housing prices artificially inflated. Not doing anything will hurt homeowners by decreasing home prices, and by foreclosing on lots of people. But this will allow new people to buy houses, and people who were foreclosed on can always buy a cheaper, smaller house afterwards. So the question is who do you want to help and who do you want to hurt? Personally, i think we should enact regulation to prevent mortgage brokers from lending people more money than they can afford, and get rid of balloon/option ARM/Interest only loans that have enabled this kind of problem from happening again and let the housing market collapse. Of course, I say that as a non-homeowner, so I'm biased.

@RobinB:
You are so right, changing the rules mid stream is a bad idea.
Banks and lenders will not take risks if the government changes the rules on them in a way that they lose money.

That is an additional risk, and investors respond to risk by expecting more return.

@moore850:

Yep, if you give people with debt a million dollars... they will be in debt again in no time.

Yay, now people can go back to nagging me to buy a house even though I know I can't afford one now. I can just fall a little behind and get the govt. to bail me out!

Personal irresponsibility FTW!

@johnva: you've got it exactly right.

Short of imposing some sort of moratorium on new housing starts (which ain't ever gonna happen), any effort to prop up property values is bound to fail. Period.

The real and effective plan should be for homeowners to refi ARMs at reasonable rates so that they can afford to make payments on the houses they currently live in. That's the only workable and equitable solution.

The fact that some of those houses may have dropped in value is unmanageable by any government action. It's Econ 101, supply v demand, there's too many damn houses out there.

When a person in an underwater-house sells for a loss, they'll be liable for the remainder of the loan, +/or face civil action by the lender. Or, stay in it for 10, 15, 20 years until it regains its value.

Bottom line, there's no need (or workable way) for the government or even financial sector to bail out property values.

5 years ago we were offered "creative financing" for our mortgage due to the fact that I was unemployed at the time having just moved across the country. My wife had a good job and mine was just trying to find something in my field. It happened 9 weeks after moving. Because of this we decided to not buy our first choice house and buy one that was 30K less (159K vs 192K) so we could make payments and not have to worry if I was longer to find a job.

I don't know who I am more upset at, the lenders trying to make a buck or the borrowers that were not thinking???

I don't get it. There has to be some way to protect the rest of us that are responsible home owners. My town is going to be hit harder than many due to a military base closure in 2011. Town of 22,000 includes close to 9,000 military family members that will all be leaving the area by 2010, which will leave a lot of housing on the market.

matt

@dualityshift: Letting these people foreclose, though not a great idea, is better than bailing them out. If the consequence of their actions is to get bailed out, what is the lesson learned?

While I agree that there are consequences to be learned, letting all these people foreclose will end up hurting smart, responsible people in the long run. Supply and demand is very clear, and the more foreclosed houses in your neighborhood, the lower you house value goes.

If you took a 30-year fixed, and you actually planned to stay in your house for more than 10 years, then sure, this does not affect you. The market will eventually shift, your house will start appreciating, and you will be fine. But for people like me, recently married, who had to buy a house in the hype of the marked, now I owe more than my house is actually worth (and I live in So. Florida, where its way worse than the nation's average). Should I have kids anytime soon, I would either have to take the hit and move to a bigger house, or ride it out in our small condo until we can sell.

It is a tough situation, and the argument between forgiveness and social responsibility will forever go on, but a solution (even not a perfect one), have to be reached, fast.

Alan Greenspan -- we need you back!

Bernanke's obviously out of control and does not understand Finance / Economics 101.

I don't know that the USA can survive 2 more years of Bernanke.

This is BS.

I am sick and tired of being punished for living wihin my means, living responsibly, and planning for my and my family's future.

Why do I have to sacrifice to pay for other people who refuse to accept personal responsibility?

If you can't afford a house, don't buy a house. If you can't afford children, don't have children. Stop pointing at me and shreiking "It'z N0t The Fair!!!"

The taxpayers and honest shareholdrs of these companies are being robbed. It's a disgrace.

I think the homeowners do bear some responsibility but you cannot ignore the fact that the banks behaved in a predatory fashion, basically using the approach, lets offer these risky bad loans to everyone we can, try our hardest to convince them they are good loans, and take every sucker we can. So on balance I'd say the banks bear more of the responsibility, but more than them, the politicians who relaxed the rules for their own benefit, bear the most.

That aside I do want to point that asking these banks to forgive this debt seems to be a very anti-free market thing to do coming from such a conservative administration.

Natural selection. The only way you're going to get good consumers is if you force the bad ones to live with their mistakes.

@B: I think your post is a good summary. The way the decision about who we want to help should be made is by looking at what the economically optimal solution is. You don't want to create a distorting economic influence via your bailout plan, because that screws up the whole process by which homes get priced and will lead to worse problems down the road. So what we really want is to do something that will lead to a restoration of economic balance and efficiency as soon as possible. Since the chief economic imbalance seems to be that homes are way overppriced, the only reasonable solution I can see is that homeowners should be the ones who take the hit. That's just what happens sometimes when you invest money - you lose a lot sometimes.

The real reform I would like to see would be some safeguards to prevent people from placing ALL their personal financial resources into their home investment. People would think it's crazy, high-risk behavior to invest all your money into a single stock. We need to somehow get people to understand that investing in a house is similar and that they really should live within their means and not go "all in" in order to slightly upgrade their lifestyle. I think the fundamental breakdown is that people were not properly understanding/mitigating against the substantial risk they were taking by buying a home.