At the risk of sounding cliche within this short composition of economics – doesn’t quality of life matter in economic equations?
Apparently not if you are the head of the FHFA Edward DeMarco.
Fannie Mae and Freddie Mac could save $1.7 billion if they forgave principal on some troubled mortgages, the companies’ regulator said
DeMarco said he remains concerned that debt writedowns could be an incentive to default for some so-called underwater homeowners, who owe more than their properties are worth, offsetting any cost savings.
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, has urged DeMarco to change the policy. “The issue here is about the numbers and the analysis and whether this is not only good for homeowners but also good for the taxpayer,” Donovan said during an April 8 television interview.
“From the perspective of FHFA, the main goal is to protect taxpayers,”
After reading these quotes do you see the picture of what is going on here? Fannie Mae and Freddie Mac can save…an incentive for homeowners of ’underwater’ homes to defaut… The issue here is about the numbers…. main goal is to protect taxpayers. Here is the problem with the arguements presented.
If Fannie and Freddie can save $1.7 billion by doing a principal reduction, that is neither here nore there. They are government owned and their mandate is make sure they help people own and finance homes. The savings is a bonus.
But can you explain how a principal reduction would be an incentive for people to default? Because I know a lot of people who would rather lose a downpayment and the time and money spent building equity in a home because they can get a few bucks. Because those same people want to be homeless to get a few bucks. Yes there is a problem here. Moreover, if the state or city is being properly managed (like some Canadian cities) than you want people to have homes because they pay property tax, which is usually the largest tax chunk for any person. A healthy tax base and revenue for the city is vital to maintaining its appeal, services, and quality of life.
As for the last quote, see the line directly above this one. Your job is to maintain populations in homes to keep them pretty and livable. That is what protects PEOPLE, CITIES, JOBS, and ALL of the things that provide quality of life. And what happens when people find a place that offers these things? They move there, which increase population, the need for homes, an increased tax base, which is really integral for their protection. Its like a bbuddy system.
Bottom line, all of their reasons for not doing a principal reduction is backwards thinking.