In last month’s U.S. mortgage refinance program, the Democrats announced a comprehensive plan to help struggling homeowners. The plan allowed homeowners to refinance to a longer amortization (ex. 35 years) or reduce their interest rate in order to make monthly payments more affordable. This Friday’s announcement went one step further, allowing homeowners to actually reduce the amount of principle they owe (ie. write off the debt). In essence, the plan is a mass Chapter 11, funded by the taxpayer.With this new plan, the home equity gamblers of 2005-2007 have really hit the jackpot. Although they lost equity in the real estate casino (which they chose to enter), the owner of the casino is now handing them their money back. Meanwhile, prudent people who didn’t gamble remain in apartments or living with their parents, driving compact cars instead of SUVs. It’s a deplorable affront to dignity and consequence.
In my view, if the big banks want to modify their mortgages to prevent further losses, they should be encouraged to do so; taxpayers, however, should have no part in it. Painful as it may be, let supply and demand work itself out, and let personal consequences matter.
See also Part I
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“The house doesn't beat the player. It just gives him the opportunity to beat himself.” Nick Dandalos, professional poker player
