Throwing good money after bad.
U.S. Loan Effort Is Seen as Adding to Housing WoesThe Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
Here's the fundamental problem with all of these programs: unless you can make them permanent (for example, unless you can permanently lower the cost of the mortgages), all you do is kick the problem down the road. And in the process those people who were having problems making their payments are triple-screwed: their credit gets ruined, they've eaten through savings (if they were having problems because of unemployment or underemployment) that could have been used to move, and the government is out of money that could have been used more efficiently elsewhere.
And that's the problem with all of these programs--no-one seems to understand the lost opportunity costs of doing something else. So the money gets wasted, does more damage than good, and we (and our children) will be paying off the money we borrowed that could have gone somewhere else.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
Here's the fundamental problem with all of these programs: unless you can make them permanent (for example, unless you can permanently lower the cost of the mortgages), all you do is kick the problem down the road. And in the process those people who were having problems making their payments are triple-screwed: their credit gets ruined, they've eaten through savings (if they were having problems because of unemployment or underemployment) that could have been used to move, and the government is out of money that could have been used more efficiently elsewhere.
And that's the problem with all of these programs--no-one seems to understand the lost opportunity costs of doing something else. So the money gets wasted, does more damage than good, and we (and our children) will be paying off the money we borrowed that could have gone somewhere else.