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Mike hopes to see the world turned upside down through local communities banding together for social change, especially churches which have recognized the radical calling to be good news to the poor, to set free the prisoners and oppressed, and to become the social embodiment of the reign of God on earth as it is in heaven. He lives with the blessed memory of his wife, in Durham, NC, and has three adult children living in three different states. He also shares his life with the Mt. Level Missionary Baptist Church in Durham, the faculty and students of Shaw University Divinity School in Raleigh, NC, and the faithful fans of Duke and Baylor Basketball in his neighborhood.

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Wednesday, December 15, 2010

Push the Reset Button on Housing

That's what Gerald Taylor of North Carolina United Power keeps saying:  "We need to push the reset button on the housing market."  The economy got thoroughly messed up by the speculative, reckless practices of the mortgage industry.  The government responded by bailing them out.  They got their derivative market reset.  They get to borrow money for virtually zero per cent interest.  AIG got to push the reset button.  GM got to push the reset button.

But the banks don't want to give the rest of us a chance.  In a mess they willingly helped to make, they got off the hook.  The winners got to buy up their competitors for cents on the dollar.  They were allowed to voluntarily find ways to help homeowners, unemployed workers, pensioners whose incomes evaporated, and other victims of the economic crisis.  But they don't want to do it.

They string families along with delays and lost paperwork, offering loan modifications while simultaneously working full steam, even fraudulently, to move the foreclosure process forward.  Attorney General Tom Miller of Iowa says that this dual-track process of promising modifications while fast-tracking foreclosure is "insane."  What sense does it make for a family to get a loan modification proposal from the bank on the same day that the bank sold their house?

Give homeowners the same chance.  Reduce mortgage principal across the board to current market values.  That's right--we need across-the-board principal reductions for homeowners underwater, whether they are behind in their payments or not.  Push the reset button.  Make a market correction.  Why?

1.  Unemployed and laid-off workers, retirees depending on pensions, and many homeowners who bought market-rate homes with the assurance that the market was operating in a rational manner (when almost no one--not even the revered Alan Greenspan--recognized the housing bubble) did not come into financial misfortune because of carelessness, greed, or risky behavior.  They were overwhelmed by the economic tsunami from the collapse of the derivative house of cards.  Getting them on their feet and keeping them in their homes will help stabilize the economy.

2.  Foreclosing on one family, then selling the same house for half-price to another family is pure stupidity.  Without all the human trauma and with less paperwork and financial loss, banks could renegotiate reasonable mortgages for the people who are at risk of foreclosure. 

3.  Neighborhoods and communities where many foreclosures have happened become depressed, forcing down the value of other homes.  This puts more homeowners underwater and creates new risks for foreclosures.  Stabilizing neighborhoods by keeping families in their homes and paying modified mortgages is good for all of us.

4.  The so-called moral hazard of adjusting loans in a way that is beneficial to the borrower is a smoke screen.  If banks were being swindled into letting people off the hook who never intended to pay their mortgages, that would be a moral hazard.  But the true moral hazard came when the mortgage industry turned into the anything-goes-mortgage-derivatives orgy.  Even admitting that some homeowners took stupid risks or failed to do due diligence before borrowing, the risks and benefits of mortgage finance have to be shared.  Letting the banks off the hook for their bad debts while holding small borrowers accountable for their debts is an unjust financial system.

So set the reset button for homeowners.


Shaun Harr said...

I think this may make TOO much sense. Since when has a business in the revered American "free market" economy passed on a received break. After all, if I get a break it is so I can get further ahead, not see that no one is left behind, right? What the banking industry's unwillingness to consider this common sense and Christ-like way of doing business shows is that the God in whom we trust that is mentioned on American currency is the money itself.

Michelle said...

If the reset button is pushed, who is suppose to pay the principal balances back to the bank? I understand that people want a reset button. My question is, "who is suppose to pay". That is the question no one can answer. Someone must pay.

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