File This Foreclosure Story under “Duh”

November 21, 2008 by  
Filed under Loans and Borrowing

It’s becoming increasingly difficult to keep up with all of the “pity the broke people” stories being published in recent weeks.  Almost as soon as I finished yesterday’s commentary on a deceptive sob story headline from the New York Times, I read yet another goofy piece published by CNNMoney.  This article reminds us that foreclosure abatement programs are all the rage but sadly points out that unemployed homeowners with no incomes are not eligible to modify their mortgage loans.  Really?  Can this be true?

Why won’t Congress design a program that freezes all foreclosures and rewrites all loans in default, even for the unemployed?   Since when is actual income a prerequisite for a mortgage loan?  (Before you question my sanity for asking that question, let me remind you that “liars loans” and other “no doc” loans had become a key part of the sub-prime mortgage landscape in recent years, contributing heavily to the subsequent meltdown.)

Returning to reality, what was the point of this story?  Do we really need to be told by a national news organization and popular personal finance magazine that if a borrower cannot pay his mortgage because he has no income he will lose his house, through foreclosure if necessary?   In the article, a law professor is quoted as saying “something needs to be done for them.”  What would that be exactly?  An emergency fund?  Oh wait – that’s the homeowner’s responsibility … isn’t it?

Earth to CNN:  Foreclosures are not a recent development and were not invented to punish today’s unemployed.   If the remedy of foreclosure is denied to lenders when borrowers have no income, the risks of lending will go sky high.  The consequence of that would be fewer loans being made, and to only the very best of borrowers.

High rates of unemployment are going to be with us for a while.  That’s what happens when a credit party ends abruptly.  Some people will suffer.  Unemployed homeowners with substantial emergency funds can ride it out.  Those who have equity can sell.  Those who have neither are in real trouble.  But that is not a reason to completely re-engineer the mortgage financing system.  

So please CNN.  Spare us from stories like this.  Just put them directly in the “duh” file.

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5 Responses to “File This Foreclosure Story under “Duh””
  1. No kidding. This is a great post. Creative loans got us into this mess, they certainly are not going to get us out. I’m glad you confront this horse pucky head-on. Great job. This is an insightful blog.

  2. It amazes me how the media never sees anything as the consumer’s fault. Certainly, there is plenty of blame to go around for the condition of our economy. However, in almost all cases, overwhelming consumer debt can be blamed on the individual consumer, overwhelmingly.

  3. Andy says:

    Some good points made here. Right now the only industry doing well is the financial media thanks to all the bad news (which sells). Just a few years ago they were promoting the companies and practices they are now deriding. If you get your news from the mainstream media you could be missing out on the real story.

  4. The customer is always right I guess. I think that it is more about getting America back on their bearings. But to get America back on their bearings, I guess America will rewrite all of the rules. The following entities now qualify for a government issued hand-out:
    1. Consumers: with little to no income, who have mysteriously got stuck in a Adjustable Rate Mortgage, which just so happened to have “adjusted”.
    2. Big businesses: who despite, global warming, and the consumer’s desperate cries for fuel efficiency, have continued to put their eggs in a “gas-guzzling” basket.
    3. Lenders: who preyed on misinformed consumers, so much so, that those misinformed consumers can no longer pay full price for services.
    4. America: the setting for this circus.

  5. Brent says:

    I couldn’t agree more. I get sick of the sob stories. There is no mystery behind how these people got in to the position they are in now, changing things won’t solve anything.

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