Housing Market Outrage

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There is no question that people on whom the banks have foreclosed without proper documentation are entitled to redress. There is also no question that many of theses so-called victims are hardly the innocent naifs they purport themselves to be. Many bought houses using false documentation. Many have made no effort to honor their contractual obligations, as in paying mortgages they agreed to pay, in some cases for years. Many have engaged in “strategic default,” a term coined to absolve those who could afford to pay what they owe, but have decided against it because their loans are underwater. And finally, there is also no question that many banks and other loan originators were thoroughly and consciously unscrupulous, signing up people for loans they couldn’t possibly afford, especially when balloon payments kicked in a couple of years later.

Are a lot of bankers scoundrels? Absolutely. A lot of the delinquent home owners as well? Ditto. So are the ratings agencies which over-valued the bundled mortgages, and the legions of public officials who championed owning a home as a “right.” Thus, any deal which resolves the problem is very likely going to let a lot of really bad actors get away with some really bad acts. Many actors who, in a far better world than this one, would end up in jail on the government/banker/Wall Street side of the equation, or out on the street on homeowner/real estate speculator side. Moreover, the idea that any deal, regardless of the final parameters, isn’t going to outrage substantial portion of the American public, is an utter pipe dream.

Letting the government officials off the hook for pursuing ridiculous housing schemes that had no basis in fiscal reality? Outrageous. Letting bankers off the hook after years of making improper loans, providing false documentation in order to foreclose, and having them pay a relatively miniscule fine as a settlement? Outrageous. Allowing homeowners who’ve stopped paying mortgages to go on living in their homes while millions of other American struggle make their own payments, often for no other reason than maintaining their integrity? Outrageous. Government-sponsored bailouts with money we don’t have for either, or both, sides?

Absolutely, mind-numbingly outrageous.

So what’s more outrageous? How about letting the housing market continue to sink below Great Depression levels, possibly leading to a double-dip recession (if we’re not there already) or worse?  How about, in the perfectly understandable urge to achieve justice, which could take years, making almost certain that the entire economy of the United States remains stagnant for years as well? And that may be the best case scenario. Is American ready for a full-fledged depression, also for years, as the price for justice?

In other words, is America ready to punish those who richly deserve it–if everyone else gets punished in the process?

This column is not advocating specific choices to solve the housing mess. It is written with the intention of telling Americans that such choices must be made within the larger economic context. Gut-churning, infuriating choices, made with a full understanding that genuine justice is likely to be the first casualty in sorting out this unholy mess. Choices that involve a kind of reverse triage: allowing some of the guilty to get away with really bad behavior, in order to save the far larger number of innocent Americans who have also been dragged down by this sordid process.

For most Americans, a house is the single largest investment they will ever make. The longer millions of Americans remain in limbo regarding that investment, the longer the entire economy will remain in that same limbo, or worse. As is often the case, life comes down to a series of tradeoffs between the lesser of two evils.

How America gets itself out from under the housing crisis is probably one of them.

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  • Gamem

    The questionable assumption in this article is that the unjust measures to save the economy discussed by Mr. Ahlert really will help. The money used to save the economy has to come from somewhere and that somewhere is from honest people who are productive enough to make the money. Taking their money away will hurt the economy perhaps more than bailing out the banks will help it. The ostensible reason for no money down loans imposed by our government was to make housing affordable to the poor. Well dropping housing prices is making it more affordable, unfortunately vanishing incomes is making affordable houses less affordable but taking money away from people who are productive simply makes their incomes vanish as well. The government's role should have been to enforce justice all along. Than the current situation would not have happened. Enforcing injustice is not the answer.

  • Michael

    The housing market is subject to supply and demand like any other market. Easy fix. No new construction permits, though old houses could be torn down and rebuilt. Aggressively tear down abandoned properties that have been vacant for a year or more. Do this for a couple of years and the problem will fix itself. It will hurt the construction business but everyone else will benefit. Some construction contractors might get into the demolition business.

  • StephenD

    Being "one of those" who owe more than my home is worth yet still honor my commitment to pay my mortgage presents a dilemma. On the one hand I could consider "Strategic Default" and let this be strictly a business decision. But the fact is, it goes against my moral fiber. As much as I counted on the equity I had a few years ago in the property, I still can't just "walk away" from it. Now, seeing this Administration perform for those with less moral conviction, getting a drop in principle and perhaps even interest with an extended loan, I must fight feeling like a fool for doing the right thing. What makes matters worse is knowing part of my good faith payments will go to offset those with ill faith.

  • dan

    At the risk of sounding like a simpleton, it seems to me that all that has happened are just symptoms of the much deeper and causative disease: Government involvement (politicization) of the private housing industry (sales and financing) with promulgation of the lie that housing is a right. In addition to the single family home debacle, apartment complexes throughout the nation are cesspools thanks to government subsidized rents under Section 8 (and no telling how many other subsidy programs). Many low income seniors and other law abiding and decent folk, including the legitimately disabled, either can't get into "good" complexes because of the reputation of that program and ravages of previous Section 8 "renters" or must live in complexes plagued by drug dealers, rudeness, theft, vandalism, and constant physical threats. What the answer is I don't know. But injustice and basic decency has become rampant, medieval in some places.

  • CharlesWhiteVIII

    How can one Be “Morally” obligated to an entire scheme that was (is) crooked? There is no “Moral” agreement if it is a dishonest deal! The Greed and Dishonesty in the Housing collapse goes further than just the “Government laws and Rules”, the “Bankers” and “Wall Street” it goes all the way down to the Illegal Alien by the millions that were drawn here during the Boom to the Contractors that hired them to the Construction Companies that subcontract out the work and all the way up to Wall Street! Yes there are many buyers who “got more house” then they could afford, a lot of them bought 2nd and 3rd homes trying to cash-in (flip the houses) on the raging greed. (continued)

    • CharlesWhiteVIII

      Most of the Buyers where scammed by the whole industry not just the top tiers! I purchased my home according to the rules (I am no finance wizard but I am not an idiot ether) but now my 300K house (not mine but many neighbors) sells for 133K to 144K on the County Courthouse steps, I don’t even live in the worst markets area but I did buy into a neighborhood that was ravaged by crooks and now I am suppose to bend over and take it without a kiss! Sorry the deals were dirty, it breaks the “Moral” obligation, Wall Street got the bailout (my tax money) the Banks got the bailout (my tax money) H3LL the Foreign investors got bailed out (my tax money) and the CEO of the now bankrupt Construction company and Subcontracting Companies still have their Big savings and assets, (continued)

      • CharlesWhiteVIII

        the Illegal Alien is still here only now their collecting even more of my “Tax Money” thru all the “Welfare services my Government gives out at the expense of “Me”, mean while I getting less to take home as taxes and prices go up (just got the letter from the “monopoly” water department that there’s an increase of 20% this October and a projected 18% next year) and I am suppose to keep paying a Mortgage that is 50% underwater and the HOUSE WILL NEVER BE WORTH THE AMOUNT I PAIDED FOR IT IN MY LIFETIME!!! NO THAT’S “MORALLY” WRONG! I have tried to do the upstanding and “morally” correct thing but now that the truth is out that the entire system was out to “Steal” from me, the “law abiding” American I think the “Deal” is NULL AND INVALID! NO "MORAL" OBLIGATION! In fact it is "Moral", Prudent and wise for me to remove myself from the "immoral" obligation.

  • sdsali

    Add into the mixture, a lot of the houses sold were overpriced and individual sellers, not just big construction companies walked away with what is collectively trillions of dollars of unjustified profit gained as a result of a government created and fueled housing bubble. I know people who bought in that market. And housing prices are still not down where they were a decade ago. So maybe the Resolution Trust Corporation approach would have been better. Government takes over the loans from what should be failing institutions, makes individual deals with the borrowers, rewarding those who have kept up their payments and punishing those who engaged in strategic defaults, and banning the brokers and loan purveyors who encouraged cheating and irresponsibility from the industry for 10 years.

  • Jim

    Immense fraud yet few are going to jail.How come?

    Some of the worst are reelected.