New York Times
Editorial<\/strong>
October 14, 2010<\/div>\n
… The White House may well be right that a moratorium would further rattle investors. But the economy is not going to rebound until the housing mess is resolved. What is needed, urgently, are laws and policies to give homeowners a better shot at reworking their loans so they can keep making payments and avoid foreclosure. Throughout this crisis, the Obama administration has been far more worried about protecting the banks than protecting homeowners. The big weaknesses in the administration’s main anti-foreclosure policy is that participation by lenders is voluntary and homeowners have little leverage to get better terms — especially reductions in loan principal when the mortgage balance is greater than the value of the home. <\/p>\n
One way to change that would be for Congress to reform the bankruptcy law so troubled borrowers could turn to the courts for a loan modification if banks were uncooperative. Homeowners also need a simple process to challenge a bank if it uses incorrect information to deny a modification and justify a foreclosure, or if it refuses to divulge the facts and figures it used. The administration also needs to alter refinancing guidelines so that many borrowers who are current in their payments are eligible to refinance to lower rates, even if their houses have declined in value. It needs to provide more legal aid to homeowners, using money authorized by Congress. <\/p>\n
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- \nthe borrower:<\/font><\/strong> I want to buy a home. I really have no real clue of what I can afford, or if I can even afford to buy a home. So I go to a Bank, and they tell me I can afford to buy a home that costs x amount with a loan that costs such-and-such per month. They look at my credit history and income and decide if they would lend my the money to take out a loan.<\/div>\n<\/li>\n
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the lender: <\/font><\/strong>I’m in the business of making a profit on loaning money, which means that I need to become an expert on how much a given person can borrow, and likely pay back. The forces that drive me are that I am only making money when it is loaned out – unless I make bad loans that default and I have to foreclose. Then I usually lose money. <\/div>\n<\/li>\n<\/ul>\nAs a non-financial person, naive to the ways of money, I’ve counted on the Bank’s self-interest in my paying off my loan to help me make my decisions. So it seemed win-win the way it was. The Bank lending me the money was invested in helping me make a realistic decision. Their mistake is their loss. When the Bank was dealing directly with me, they shouldered the risk of the loan. Too many risky loans and they were toast. Too tight the control on their lending and they made no profit. It reminds me of a code of morality for businessmen I recently read:<\/p>\n
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That makes absolutely no sense at all. If the people making the loans aren’t going to have to deal with the risk themselves, and they are given an incentive to make lots of loans and make their profit by minimizing risk, it doesn’t matter one little bit what happens after that. It doesn’t matter what exotic ways people find to "hedge" the risk. Somewhere down the line, the "risky business" will catch up. And the cascades of increasing risk won’t hurt the people who took it. For example,