Not All Distressed Homeowners Are Pie-in-the-Sky Purchasers or Equity-Sucking Pigs

On the subject of the current real estate crisis, there is a school of thought that goes something like this: People who are in trouble with their mortgages either bought way more house than they could afford or else refinanced one or more times, using the equity in their homes to buy toys or take vacations. In other words, that all of these people are greedy, irresponsible ignoramuses, living beyond their means with no personal sense of responsibility, clueless or uncaring about the consequences of their decisions. They deserve to reap what they have sown. Wow!

I just read and commented on a post by Elliott Topkins: Basic Misunderstandings About the Benefits of Foreclosure. He has a more charitable view of the underwater homeowner, one I think should be at least considered by those espousing the sentiments above.

Now I won't argue that there were some people that behaved in that manner at the time. But I would argue that they had a lot of help and encouragement from those that stood to profit from their choices. Bank representatives going door to door in places like inner city Detroit urging people to do cash out refis, mortgage brokers that assured buyers that they could refinance their POS pick-a-pay loan as soon as their home value went up, etc. etc.

But overlooking those people for a moment, what about the endless masses caught in the downdraft? Many, many prudent people are now trapped in their homes. Some of them have lost what were previously secure jobs until the economy went in the toilet. Others are forced to move by circumstances beyond their control. Many developed serious illnesses, obviously through no fault of their own. Even the most forward-thinking, contingency-planning person doesn't plan their life around the possibility that they may develop pancreatic cancer, for example. Anyone who thinks that insurance takes care of it all hasn't made a claim on an insurance policy lately.

In the olden days of five or six years ago, these people might have had to make the hard choice to sell their home; at least that was an option. Now, selling may very well be impossible, certainly in the traditional manner. How is that their fault? These are people who sincerely want to do the right thing, stay in their home or not, but get on with their lives with some dignity intact.  Slamming them with insulting labels and refusing to help (HAMP is window dressing at best, an opportunity to extort the last dime out of strapped homeowners at worst) does nothing to move us through a black period in both real estate and banking.