Mortgage Meltdown

The lead article in today’s New York Times is titled, “U.S. Loan Effort is Seen as Adding to Housing Woes.” It describes potentially negative fallout from President Obama’s program to protect homeowners from foreclosure.

The article notes that the $75 billion program, “Making Home Affordable,” may be delaying the inevitable. By temporarily lowering mortgage payments for troubled homeowners, it may just be postoning a day of reckoning. Homeowners who can’t really afford their mortgages will eventually need to make the original payments, and meanwhile, they are wasting their money instead of moving into a rental situation they can afford. In addition, the program may be having the same effect on banks who delay admitting the negative effect of these loans in their portfolio.

In my opinion, the article is unduly critical. By providing temporary relief, the Obama program holds out the hope of a change in circumstance in the financial situation of these homeowners. The change could be as simple as procuring a new job as the economy recovers or finding a new revenue stream. Homeowners in a precarious situation should also be given time to work out new living arrangements or a safe place for their kids to reside should a more serious homeless situation loom.

Even if only a small percentage of homeowners are able to bailout from their current situation, is that too large a price to pay for their rescue?