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Did Wrong Actions Lengthen the Housing Crisis?

By
Real Estate Agent with Remerica Hometown One

I saw an interesting segment on Fox and Friends this morning. I know, this isn't the hardest hitting news show on T.V. but once in a while they come up with something good.

Professor John GeanakopolosJohn Geanakopolos, Economics professor at Yale University talked about how reducing interest rates for existing mortgages had little or no effect on the mousing crisis. His idea is that banks should lower the principle to incentivise homeowners to stay. In a nutshell, a home worth 160,000.00 is now worth 100,00.00. The home goes into foreclosure, takes 18 months or so to be sold again, is torn up and is a bight on the neighborhood. To top it off, the bank may sell the home for 40,000.00, if that.

His idea is to reduce the principle amount to 80,000.00. That gives the homeowner some equity and greater incentive to stay in the home or at least makes it sellable. The bank makes 40,000.00 more than they would have.

this is very simplistic and I've included a link to the full article.

http://www.nytimes.com/2009/03/05/opinion/05geanokoplos.html?_r=1&adxnnl=1&ref=opinion&adxnnlx=1258733274-DqeLXVXtah1yVkV0WBNcLg

While in principle I agree that it would have been a better move, I do have some reservations. I wouldn't want the government telling banks they have to do this. I'm fully for a free market and while it would be in the banks, as well as everyone elses, best interest to do this, it can't be forced.

Please give me your feedback.

 

Mick Michaud
Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107 - Granbury, TX
Your Texas Lifestyle is Here!

I'm a free marketer, for the most part.  But if you look at what these same banks are doing to everyone's credit rating, I say its time for revolution where their tactics are concerned.

And the government is no less culpable.  The financial crisis was brought to light by the sub-prime, not caused by it.

We had termites in the house long before it fell down.

 

Nov 20, 2009 02:37 AM