Moral hazard for main street

September 21, 2008 at 5:15 pm | Posted in Housing | Leave a comment
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Let me see – These guys are finding it difficult to make the payments, and they owe more than the house is worth, and many of these are 2006 /07 vintages – i.e., They are still on the original ARM terms, they cannot claim to be in trouble because the interest rate reset to some unaffordable level.

How, exactly, would the government help them? Do we artificially lower the interest rate they have to pay? Do we forgive a part of their debt and lower the principal balance? Do we give them a longer repayment term?

And why does someone who took a mortgage they couldn’t afford, and is delinquent, deserve rescue? I could have taken a larger mortgage – I could have cashed out, or be living in a larger house – I didn’t. I’ve made all my payments on time. Do I have to continue to owe the full principal at whatever my rate is, while this guy misses a few payments, has 20% shaved off his balance, and the interest rate lowered by 2%?

Maybe I should consider skipping a few payments too.


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