Saturday, January 02, 2010

The Failure of the Homeowner Assistance Program

Trying to prop up the real estate market by trying to get people who should never have been in a position to buy homes that they could not afford to continue paying their unaffordable mortgages was, is, and will continue to be, a bad idea.

The Making Home Affordable Program has thrown billions at a problem that never actually existed. Foreclosure isn't a problem; it's the ultimate corrective to an out of control real estate market and resets prices of homes to a vastly more affordable condition. By allowing borrowers to try and tweak their mortgage interest rates to get them to stay in their homes just a little while longer does no one any good.

Those home buyers who are in a position to buy affordable homes are thwarted because home prices remain higher than they should be, limiting the demand on homes. Those trying to sell their homes may feel the pain of taking less than they would have just a few years ago, but those who have significant equity in their home shouldn't feel the pain; those who made disastrously bad business decisions will - the banks that lent to those who lacked the ability to repay and the individuals who figured that they could keep paying for their overpriced homes on borrowed money.

The Obama homeowner assistance program is delaying a true market recovery in real estate, and doesn't force banks to realign their business practices to the reality that they can and must lend to those who have solid credit while accepting greater risk from those who have lesser credit.

Meanwhile, it also harms those homeowners who have solid credit but can't take advantage of the same programs because they did the right thing all along and yet can't get interest rate reductions or other benefits of the program.

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