Friday, June 5, 2009

Mortgage Contract Not Worth the Paper its Printed On?

I came across this article that describes the heroics of members of Congress to help their constituents in trouble with their mortgages:

While I do applaud these Representatives for wanting to help their constituents - and I really liked what Maryland Rep Elijah Cummings was doing to bring lenders and mortgage holders together - I was quite dismayed to see that some members of Congress were trying to pass a law that would force banks to accept losses on existing mortgages to keep people in their homes. Thank goodness a bill that would allow Congress to pretty much tear up existing mortgage contracts and allow judges to force banks to take less money for people in bankruptcy. Smiling Dick Durbin of Illinois came up with that gem, which surprise, surprise, is supported by my old friend Maxine Waters.

Why do I think that it is a bad idea to allow judges to lower payments for people so that they can stay in their homes and stick it to the evil, greedy, faceless banks? Because a mortgage is a contract. When you sign that paper saying that you will pay back the money you are borrowing or the bank can take your home, well then you better make the payments or look for a new place to live. Cold hearted? Possibly. But to allow contracts to be arbitrarily broken is horrible business. Guess what I would do if I were a bank in the mortgage business and Congress had the power to stick me with the loss on any given mortgage? Yep, I'd raise the cost of getting a mortgage for everybody to cover the added losses for those who go bankrupt. That means that to keep the irresponsible nitwits who borrowed more than they could pay back in their houses that they can't afford, the rest of us have to pony up more hard-earned cash for our homes. Sounds like a typical liberal make all of us miserable to be equal policy to me.

You can ask me what I think about the Federal government's new plan to insure mortgages in an attempt to stem the foreclosure avalanche, but you probably already know what my answer would be. Haven't Fannie and Freddie lost enough of our money already? Its a sticky mess out there because banks can't really afford to take the losses that reworking really ugly mortgages would cause and Congress is under pressure to do something to help out. Do you know what my plan is? Let the banks work it out with the homeowners without government intervention. The banks will figure out which customers can afford to stay in their homes and what losses are acceptable to take on reworking those peoples' mortgages. Everyone else, your house goes back to the bank and on to the market. I know that this strategy will push the housing market lower, but it will not cost the taxpayers (people who didn't have mortgages that they couldn't pay back) anything more. Yep, everybody be responsible for yourselves for a change. The longer we keep trying to prop up this housing mess, the longer its going to take for the economy itself to recover.
I look into my crystal ball and see Congress giving in to the pressure, and allocating billions of our tax dollars to bail the homeowners out and artificially prop the market up for the short-term, causing an even bigger mess in the long-term. This is primarily because most members of Congress are too gutless to do the right thing, especially when the heat will come because they calously allowed people to lose their homes. No mention will be made of those people getting in over their heads on their own. Meanwhile, all of us who didn't get ourselves into trouble by buying houses that we couldn't afford are going to end up paying for our neighbors' stupidity. Hmmm, maybe they weren't so stupid after all - Citizen Zane


  1. This sounds strangely familiar. Monarchy anyone.

  2. Yes, eventually King Solomon will decree that the baby will be divided between both parties.