The Price of the Housing Depression

Lynn, I feel that the issue will be resolved with the passage of time.  Eventually all those suffering will die.  They are just collateral damage having little visible effect on the government or the housing and lending industry.  The folks I'm referring to have not been financially mortally wounded, just chronically in housing distress.  It appears that almost nobody cares.

Over the years, our government and probably many others have left a trail of human ruin in their path.  It is about the only thing in which both parties have managed to consistently managed to collaborate.  What frustrates me is that there are inexpensive, cost effective ways to mitigate.  Again, nobody cares, choosing instead to argue about how to raise taxes with nobody noticing and whether or not to tolerate same sex marriages. 

Clifford, thank you for reading and commenting.  There were many folks who were renters with delusions.  They have been mostly returned to their original arrangements through the foreclosure process.  They got to live in a home they couldn't afford until reality and the lenders caught up with them.  They may have been victims, maybe not.

Linda, everyone needs a reduction of principal.  That's what the amortization tables are for.  What would be possible if there were a sensible lending industry, sensible regulators, and a sensible Congress is a plan to work the balance down more rapidly than the standard am. table.  Homeowners who are otherwise creditworthy and capable of a higher monthly payment could, in some circumstances, be allowed to port their debt to more suitable and desirable homes.  Others who are underwater and happy where they are now living could be offered a temporary reduction in interest rates in exchange for a higher monthly payment, all excess toward accelerated principal reduction.  Too bad it will never happen.

Doug, recovery mode will only be significant for current homebuyers.  It would seem like a blessing, but the curse of the depression will continue for a half generation of current homeowners for years.

Gail, unfortunately nobody cares about that part of America.  There are alternatives to arbitrarily forgiving a portion of a debt.  Too bad there are no innovative lenders.  Also too bad there are no productive elected officials.

Tamara, consider a couple buying their starter home in 2005.  Now the couple has three kids and two bedrooms.  In a few years their soon to be teenage daughter gets to share a bedroom with her two younger brothers.  The family can afford a substantially higher monthly payment and even has enough in the bank for a decent downpayment.  They don't have the 50K to bring to closing, and they probably won't have it before the kids start to leave for college.  I suppose they could sell a couple kids to the Pirates.  Their only "honorable" course is to rent their place out and find a nice rental with more space.  They can join the ranks of tenant-landlords.  Yippee!

Fernando,  I believe that owners have to make decisions based on what is the most perceived beneficial outcome for them and their families.  It would be difficult to fault the character of someone doing their best for their family.

William, thank you for your comments.  As you indicate, there are casualties, and we are all responsible for our own actions.  Of course, that may make a case for walking away from a home one no longer finds useful.  With just a little imagination and execution on the part of lenders and government, millions of homeowners who were underwater a few years ago could be seeing light at the end of the tunnel.  that's real light, not the light indicating an oncoming train wreck. 

In his farewell address to the American people Dwight Eisenhower spoke of the horror an lingering sadness of war.  Many soldiers returning from battle suffer mental and emotionsl trauma for the rest of their lives.  That trauma is seldom considered in "pricing out" the cost of a war.  The main reason is that those people are simply forgotten.  They have arms and legs and maybe are able to hold a job.  Nobody cares that their lives have been disabled to a substantial degree.  Likewise, but certainly to a much lesser degree, a generation of people you and I encouraged to buy a starter home have suffered severe financial harm.  We have a strategy for dealing with both the soldiers and the distressed homeowners -- forget them, ignore them, and eventually they will live out their lives.  The problem will pass with them.

Gene, what continues to annoy me is that the low cost solutions are not even being considered.  No solution fits everyone, but there are some steps that could be taken that would be helpful.  Again, it would involve a little imagination and cooperation among lenders, regulators, and the two Houses of Donothing in Washington.  The chosen solution, ignore the problem, actually will work in time.  The problem gets a little smaller each day as some folks walk away, others inherit a few bucks or win the lottery, and some simply assume room temperature. 

Chuck, that's why there is a large number of tenant-landlords in this area.  It's a fairly workable tactic for some.

Jeanne,  until the later part of the 2000 decade, we were encouraging first time buyers to get into the game as soon as possible to hedge against the rapid increases in home prices.  They listened to us and are still in their starter homes.  In this current war on business, we're seeing large corporate real estate owners renting to the proletariat.  Maybe an unintended consequence of this administration's behavior.  At any rate, the folks in distress will go away if we just don't think about them.