Lose a little, or lose it all?

As the financial crisis has evolved, one subject that keeps causing contention is mortgage adjustment.  As people are losing jobs and seeing investments sour, their ability to pay their mortgage has dwindled.  Forecloseures are on the rise across the nation, resulting in more houses being put into a market which is already saturated.  This leads to home prices declining, which means that more people are holding mortgages that are worth more than the house.

Mortgage adjustment means altering the terms of the mortgage, either lowering the amount that must be paid, or extending the length of the mortgage.  These adjustments are made with the hope that they will help keep people in their homes, by preventing foreclosures.  But many of the investors who hold the mortgages are determined to avoid adjustments to those mortgages, believing that they will lose money.

True, if a mortgage is adjusted so that the amount owed is reduced, the holder of the mortgage is not going to get all of their money back.  But what happens when the the mortgage holder defaults, and the home is foreclosed?  It used to be that the mortgage holder could eventually get most of their investment back, through various legal means.  These days, the mortgage holder is in danger of getting little or no return on the investment if the homeowner defaults, because the price of the asset that secured the mortgage is shrinking so quickly.

The greed that got us into this mess is still with us, thwarting efforts to prevent things from spiraling further down. Demanding that a homeowner repay every penny of mortgage when the value of the home has decreased by as much as half is ridiculous, and is likely to lead to more bundled securities becoming toxic, as homeowners walk away from properties, or lose them in foreclosure.

Failing to realize that we are all in this together, and that no one is going to emerge whole raises the risk that we all will lose significantly.  Refusing to willfully downsize an invistment in light of the current economic situation increases the likelyhood that that investment will become practically worthless.  Who has more to lose, the homeowner, or the investor financing hundreds of homeowners?


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One Response to “Lose a little, or lose it all?”

  1. tashinorbo Says:

    I do believe that those homeowners who cannot afford to continue to make payments as a result of job loss or significant loss of income for another economic recession related reason should be offered the opportunity to have a mortgage adjustment. However, is it really reasonable that simply because you purchased your house, at what turned out to be a bad price, you should now have to pay less? When the market improves and your house is worth more the bank does not come asking that you increase the amount you now owe the bank to adjust for the higher value of your home. There is a stark difference between those who cannot pay and those who made bad investments buy purchasing a house during a boom time.


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