Two comments on the foreclosure “crisis”. But before I get to them, let me say upfront that I realize they may sound a little harsh. I apologize. Maybe if I mull-ed this over a little more, I could make them sound less harsh or maybe my thoughts would change, but for today, here they are.
First, I agree that proper procedures need to be followed in connection with foreclosures. But, on the other hand, we have to be realistic about it, too. If people aren’t paying their mortgage, whether because they can’t or because they decided it was a better financial decision not to, there needs to be some limit on how long they can stay in the house. Obviously, we will feel worse for somebody who can’t pay their mortgage than for somebody who just decided not to. But in both situations, if people aren’t paying, they are going to have to leave. If the real estate market is ever going to get back to some kind of “normal,” we have to deal with foreclosures on a reasonably prompt basis. If we don’t, they will hang over the market like an overhang of snow, waiting to fall, and scaring the market until it does.
My second comment relates to people who bought their houses with virtually no money down. A lot of people did that. They would, for example, get 100% loans. And then, with credits back from the seller and tax prorations (at least in Illinois), people would be able to buy a house and get money back at closing. Amazingly, loans with only 3.5% down continue to be available – and with credits from the seller and tax prorations, that means people are still buying houses with virtually no money down.
Here is the comment: When people who buy a house on that basis are foreclosed, they aren’t really losing their house. They’re losing their apartment. In reality, they were renting with a one-way option to own once prices rose and they had been there a while.
And the same is true for people who bought and then took all of the equity out of their house with home equity loans or refinancing. They may have started out as a buyer (because they put a substantial amount of money down), but once they started treating their house as a money tree or ATM, they shifted over to being renters, too.
Maybe some of these people were tricked or misled, but most of them weren’t. Maybe they got bad advice, but they decided to follow it. Nobody forced them to do it. And either they got the house on the cheap or they got a bunch of money out of the house so they could buy something else.
Comments