The news just keeps getting worse. The impact of the mortgage crisis is spreading—to higher-end home buyers with good credit, to the commercial real estate market, to Wall Street, to the global financial markets. A chain reaction is taking place, the likes of which we've never seen before. And it's getting harder to tell whether news coverage of the events, a veritable media feeding frenzy, is reporting, or creating, the hysteria.
The highly charged subject of foreclosures, for example, is like the biggest buffet table of op-ed writing on earth—it has something for everyone. Economic pessimists see the rising tide of foreclosures as the beginning of the end, their cascading ill effects leading to the imminent collapse of financial markets in the U.S., Europe, and Asia. Sunny entrepreneurs view them as the latest opportunity for a good business score, yet another way of making lemonade out of other people's lemons. Politicians see an opening a mile wide to advance their parties' agendas (and, incidentally, their own), calling for government intervention for homeowners who face losing their homes or, alternatively, for an application of the salve of empathy. Good-hearted folks decry the loss of opportunity for the economically disadvantaged and the reversal of the increase in homeownership, while clear-light-of-day pragmatists explain, once again, that not everyone is ready or able to assume the responsibilities of being a homeowner.
Meanwhile, back at the rancher, John and Jane Doe are losing the home they bought just last year or the year before. It could be happening for any number of reasons. For instance, John might have lost his job because the plant where he works is closing down, or the family's young child might have needed a complicated surgical procedure requiring a long hospital stay. Or maybe the Does didn't understand just how much their mortgage would go up when their ARM reset, and they can't make the payments even though they work second jobs on the weekend. Perhaps they got in a little over their heads because of all the new furniture they bought on credit for their new house. Or perhaps they never lived in the house at all. They knew someone who was making a killing flipping houses and it seemed so easy. Then the market went south, they couldn't sell the house for what they had in it, and they've exhausted the small amount of capital they'd scrounged up for this venture.
We've seen all these scenarios outlined in the daily news onslaught, but where is the coverage of possible solutions? The truth is, large numbers of foreclosures hurt everyone in a community (see “Midnight Run,” page 154). They hurt those who are losing their homes, whether we sympathize with the reason why or not. They hurt neighbors who still live there but lose equity even as they pay their principal down. Their biggest investments, their homes, are losing value because of comparable properties going for fire-sale prices at auction or because vacant and unkept houses in a neighborhood drive everyone's prices down. Local builders are hurt because their numbers no longer work. The amount they paid for land in the good times was too high to make any profit from now at current deflated prices. And that's if they can sell the homes at all in a depressed community. Retail and commercial businesses suffer, as well.
So what is the best tack to take? A wholesale bailout, or any other one-size-fits-all solution, is not the answer. It would be grossly unfair for taxpayers to have to pony up cash that would benefit investors along with the troubled homeowners it is meant to help. Though we don't hear much about it in the news, some states are taking the initiative to assist low- to moderate-income borrowers who are finding it hard to refinance. Ohio, Massachusetts, New York, and Maryland have started programs for residents unable to get new mortgages through conventional lenders. Though the programs, as yet, have limited resources available, they do appear to be taking care of one item that wasn't addressed the first time around for many borrowers: credit checks. And that, above all, should be a key element of any program meant to take aim at the current mess.
Editor in Chief