Flawed Mortgage Fix: Banks will accelerate foreclosures in order to take advantage of the government’s handout. By intervening in the market, the government, as usual, is going to make matters a whole lot worse, not better.
Take the time to read Lawrence Hunter’s piece. Here are the highlights:
Banks have been refusing to sell off foreclosed properties at market-clearing prices, which means they are foreclosing on far fewer homes than the status of their loans justifies.
Instead of foreclosing, banks want to keep even non-performing loans on their books as assets at the loan-origination value, which they are allowed to do under current accounting practices. This allows mortgage lenders to keep a warm body in the house taking care of the asset while they continue using overstated balance sheets to mislead stockholders, regulators, and the public about their true financial health.
It is a government handout for the banks, not a hand up for homeowners. But it is worse than simply a waste of taxpayers’ money; it will upset the fragile equilibrium that currently prevents a tsunami of foreclosures from washing across America and drowning millions of American homeowners who are in precarious financial condition and upside-down in their homes.
Tags: Election 2008
