Housing Plan Designed to Stop Foreclosures

President Obama and his team are in the midst of designing a plan to reduce mortgage foreclosures. A big part of the plan is to give some relief to existing homeowners (or, more appropriately, people who live in houses that were purchased through borrowed money called mortgages. Not many people really own their homes) by making loan modifications for “responsible homeowners.”

Before you get your panties in a bunch (they borrowed too much money in the first place), let’s just think about this:

As your neighbor loses his house, and the value of that house declines because the bank that now owns the house doesn’t want it and sells it low just to get out from under it, what do you think is happening to the value of YOUR house?

As almost everything goes in economics, Adam Smith’s “Invisible Hand” is at work! People do the things they do for self interest.

So give this one a try: If your neighbor can somehow keep his house, it won’t decline in real value (it may decline in perceived value), but until it hits the market, “comparable sales” will not show a decline in your neighborhood, and that’s GOOD FOR YOU!!!

Stop foreclosures –> stop bad loans –> start credit flow –> people buy stuff

Got that? 

Money isn’t everything. It’s the only thing. Wait. That’s only for football.
Enjoy life. Spend time with your family.


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Llama Money - February 19, 2009 Reply

I still hate the idea of irresponsible folks who made bad decisions getting a huge break, while responsible folks like me get to pay for it. Perhaps it’s not *so* terrible for housing values to drop a bit more, so they’re actually affordable, and priced reasonably.

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