WRONG
TURN
that Geithner’s newfound embrace
of principal reduction looks an awful lot like “political posturing.”
MYTHOLOGICAL
ASSUMPTIONS
The tough part about rebutting
the moral hazard argument is that
some homeowners probably would
stop paying their mortgage in order to cash in on the governme nt’s
largess. Others who would get the
help don’t really deserve it.
I spoke with a housing counselor
in Florida not long ago who told me
that the only client she had that had
gotten debt relief, out of dozens,
was the one who had made the most
foolish gamble on buying his home.
But there simply isn’t much
evidence to support the prediction
that masses of homeowners will
take a gamble on their most valuable possession in order to possibly lower their balance.
“I think the spectre of ‘moral
hazard’ is an ideologically driven
fear built on mythological assumptions about people in economic
distress and their willingness to
hurtle themselves into foreclosure
so they can try to game the system,” said Joseph Sant, an attorney at Staten Island Legal Services
in New York, expressing the senti-
HUFFINGTON
11.04.12
ment of many supporters.
Meanwhile, much evidence suggests that principal reduction actually prevents foreclosures and
saves investor money. Re-default
rates on the small number of mortgages modified with debt forgiveness under the Home Affordable
Modification Program are less than
half what they are program-wide.
Remarkably, even DeMarco’s
own data suggests forgiving debts
is a good idea. At the same time
that he announced he was rejecting principal reduction for good,
his agency released a report that
showed it could help save the taxpayer as much as $1 billion, and
the companies up to $3.6 billion.
What does Obama think? He
has, in the past, acknowledged
that the foreclosure problem was
more significant than he anticipated, and the programs he promoted less effective. But on the
campaign trail he has been silent.
Surprisingly, Romney has failed
to exploit this vulnerability. In a
housing plan released on his campaign web site, Romney said he
would “spare thousands of families from going through the foreclosure process” by making foreclosure alternatives easier, but
included no details on what he