Thursday, January 29, 2009

Ex-Stockton Mayor One Step from Foreclosure?

I would not be surprised to see this story get picked up nationally.

I have mixed feelings about it.

On one hand, I expect public leaders to act more selflessly than the average person, so I find this story disapointing. I understand why it is so upsetting.

On the other hand, it doesn't help the situation to get angry at people who "walk away" from underwater mortgages. We have to recognize the incentives and expect people to act in their own best interest. When that isn't in the community's best interests, we need to fix the financial incentives.

The only way to fix the default incentive is to facillitate loan principal write-downs for owner-occupants who will continue living in the house (Chavez wouldn't qualify since he moved away. Foreclosure should proceed here if there is no short sale). Making that happen in a way that is fair and cost-effective is difficult. I think shared-appreciation mortgages (where homeonwers who have principal written down share any future gains from sale with their lenders or taxpayers) offer the best chance for this.

No comments:

Post a Comment