Wednesday, February 18, 2009

Under Water

One of the aims of the President’s Foreclosure solution is to provide help to people who have a home that is now worth less than the mortgage. He wants to change the mortgage to reflect the current value because the house was worth more last year than it is worth today. And if it is worth more in the future than it is now does the mortgage revert back to its current terms? Does anyone give any money back? Historically, housing values fluctuate over time; mostly they have increased but fluctuations happen.
It is instructive to look at the option of doing nothing in this situation. Two things are certain under this action: People who didn’t make a down payment will get money; people who did make a substantial down payment will get nothing. Once again, the government is subsidizing the wrong thing.

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