Last night I listened to segments of the presidential debate from the University of Texas between Obama and Clinton. Both candidates expressed concern about the vast number of foreclosures as a result of "predatory" lending and proposed a moratorium, similar to the one on the table from the Bush administration, only longer and more comprehensive. Both championed the victims of the housing crisis, who were the prey of devious lenders who floated confusing loans to people who didn't understand interest rates or prepayment penalties.
I generally don't buy this position. Many recent books describe the bubble mentality. People were caught up in the idea that real estate would continue to go up, develop an equity position and be able to sell for a tidy profit or refinance when necessary. The frenzy to take advantage of making money in real estate led to inflated prices. Also builders continued to build, flooding the inventory with larger more expensive homes. Higher prices began to make fewer people qualified and those that could buy, had already. The result was the inevitable burst.
The candidates depicted the victims like they were the disenfranchised from the "Dust Bowl" era. Actually a recent study showed that most foreclosure "victims" are either investors walking away from excess inventory or homeowners who had jobs, but were upside down in their home they had put no money of their own in anyway, and felt it was financially smarter to give the home up.
The idea of preventing the foreclosures through federal financial incentives or extending the time for a plan to be worked out sounds admirable and full of social consciousness. However it is worth remembering that banks actually are also winners in this scenario. This will ostensibly slow down their losses on the resale of the foreclosed properties. As property owners are bailed out, the increasing inventory will diminish and falling prices will begin to stabilize and maybe even prices will increase as less lower priced distressed properties are on the market.
Increased prices benefit only those few who can afford them and we are back where we started. Most people are so mired in debt or earn such a low wage, that home ownership becomes increasingly challenging, especially in light of tougher lending practices.
Both candidates seemed to cater in their debate to the less fortunate but, in reality, are more receptive on the subject of the housing crisis to the "special interests" of builders, banks, real estate people and financial speculators. Wouldn't it have been a hoot if a candidate had said "Wow, Isn't it wonderful that the price of something is falling. If it only comes down some more, maybe you will be able to share in the American dream of home ownership. Your wage and 50 cents will buy more than a ride on a bus!" Lee