Is Foreclosure Relief Fair to Everyone Else?
Q. At the peak of the housing bubble, my brother and his wife bought a house that seemed to be beyond their means, with no money down. It was a financial stretch from day one, and when she lost her job, they stopped paying their mortgage. Ever since, they've used a variety of apparently legal means to stave off foreclosure. Now they're planning to use a new federal program to get a big reduction in their mortgage balance, enabling them to stay in a house they never could afford. Is this ethical?
Not to me. It would be best if your brother's family surrendered a house that they have paid virtually nothing to occupy and let it be resold to a family who can actually afford it. They are not victims of the housing crisis -- they've lost nothing -- but they are part of the reason it has taken so long to correct.
There was a lot of foolish and unethical conduct that helped inflate the housing bubble -- on the part of mortgage lenders and brokers, sellers of mortgage-backed securities, regulators, and congressmen who pressured housing finance agencies to loosen lending standards for risky home buyers, some of whom were duped and some of whom were just naïve. And there were real victims -- honest folks who lost a lot of equity when the bubble burst.
Now we're seeing state and federal foreclosure relief that looks unfair to taxpayers and arbitrary in its benefits. And it seems especially unfair to home buyers who didn't buy houses they couldn't afford and who have been honoring their mortgage obligations, even if their houses are underwater on value, at great personal sacrifice.
No one has a right to continue living in a place he or she can't afford. Foreclosure law has traditionally given homeowners a decent chance to square their accounts, and some jurisdictions have aid for those struggling with temporary hardships. But governmental programs that help homeowners block legitimate foreclosures or force mortgage holders to discount balances owed are unsound both ethically and economically.