Barry Ritholz has another sensible article about the current crisis and the impending push to 'save' borrowers and prevent foreclosures. He starts from the premise that many of these people should not be saved. They screwed up and bought property they could not afford when they bought the property and, importantly, cannot afford it now even if the mortgage is cut by 20% or 30%. The people who gave them the mortgage because they were greedy should pay the price for their stupidity.
One argument for 'saving' these mortgages is the “prevent(ion of) the continued downward spiral of the housing market.” But Rithholz argues that, by almost any past standard, in many cases housing prices are still totally out of whack. If the market is ever going to recover, house prices have to be more in keeping with the norms that have proven themselves over the years - such as the relationship of one's income to the value of one's house or the cost of owning versus renting.
Ritholz is not saying no help should be given. He feels that it should be given where there is a reasonable chance that an alternative structure - i.e., dividing a mortgage into two parts: what one can afford today and a ballon payment due in ten years - could be used where the house price is reasonable and both parties could agree on the details of the alternative structure.
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