The Season of Foreclosure

The thread of destiny draws us back to the core over and over. I look back on my old blogs and cringe at their amateurishness. Yet, something stays my hand as I hover the cursor over the “edit” button. When you start from a low point, it is easy to show progress. Therefore I will leave my cringe-worthy early blogs intact, and instead press onwards towards a (hopefully) more enlightened future.

For those of you who are, for whatever reason, interested in my life, it has undergone some significant changes since I started blogging. Now thirty-six, I am happily married to a wonderful woman, back to living in San Francisco, and, after a prodigal period away, have returned to the nest of the employer I was working for just before my first posting in 2002. My life has been a series of recursive loops bringing me back to the center. Yet, with each iteration I feel as if I have managed ever-so-slightly to elevate myself on an internal level.

So… enough navel-gazing (as I promised to refrain from, so long ago). On to writing something topical.

The media is filled with talk of the “housing meltdown.” More sassy wags have flagged it as the “foreclosure explosion.” Yes, it is terrible to lose one’s primary residence. There are quiet, desperate tragedies playing out all around us now. But one must wonder what these people were thinking when they signed on the dotted line. A family with six children and a household income under sixty thousand decides they want to buy a nice house in the San Francisco Bay Area. To do so, they must agree to terms that seem alien: 5/1 ARM, interest-only, 80/20 piggyback, mortgage insurance, balloon. Surely, they reckon, the loan agent would have their best interests in mind, and would not sell them a loan they could not reasonably be expected to pay back?

Unfortunately, the days of community lending are long gone. The friendly neighborhood savings and loan agent who you chat with at the drugstore on Friday afternoons is long gone, just like milk delivery and full-service gas stations. If you do not make an effort to fully understand the terms of a commitment you are legally binding yourself to, you are asking for trouble. Likewise if you do not sit down with pencil, paper, and calculator and make a hard-nosed assessment (no dreaming allowed, at least for the purposes of this exercise) of just how much you can afford. And if that assessment tells you that you cannot afford the purchase, then you simply do not make it.

Oh, but they assumed the market would keep rising, and they would be able to sell their house for a profit before it resets, I hear you say. For the moment I will put aside my suspicion that most signatories for such mortgages are not nearly savvy enough or farsighted enough to think in those terms. But one must look at the historical record. A rising tide may lift all boats, but no tide rises forever. There is a risk that conditions will change. The concept of risk assessment supposes that one can determine their tolerance for risk and make decisions appropriately. Risking your children’s future for the possibility of a future payoff does not seem wise.

And so we have foreclosures. This is, in the dismal science of economics, a normal process; downright Darwinian. Those who cannot keep up their end of the bargain fall into the trash heap of history, and the creditors repossess the property to minimize their loss. But unfortunately, along with full-service gas stations, another casualty of the millennial rollover has been personal responsibility. The people who rolled the dice on a 5/1 interest-only ARM and came up with snake-eyes are now looking for an out, claming they were duped, cajoled, or otherwise coerced into signing the contract. This may be, but such cases should be investigated on a case-by-case basis. Instead, however, some organizations are calling for a blanket forgiveness on subprime loans and a moratorium on foreclosures. Such wholesale discharging of responsibility would be disastrous for our society. What lending organization in its right mind would continue to extend mortgages to homeowners in the future, knowing there is a very real possibility that they may lose the entire value of the loan with no possibility of recovering even a portion of the balance? The difficulty of securing a mortgage, even for people with verifiable incomes and good credit histories, would become astronomical.

People who speculated on dangerous ARMS and drew the short straw need to suck it up and either sell the house for a loss or mail the keys back to the bank, and then move somewhere where they can afford to live (I hear the Midwest is still quite reasonable). With any luck, their bankruptcy will disappear off of their credit report before they have to apply for their children’s college loans.


EDIT 11/5/2007: This article on CNN.com validates my point of view, and tells me that I'm not the only person annoyed by this bailout. But just like the S&L bailout of over a decade ago, those making risky, unscrupulous decisions will walk away unscathed, because to allow them to go down in flames would damage the economy too much. Which tells me that it's better to prevent this kind of behavior up front than have to clean up the mess later (q.v., Enron). It's playing chicken with the economy, holding the responsible people hostage to demand a bailout.

A paralell can be made to helmet laws. As an avid motorcyclist myself, I would not dream of going out on the road without a Snell-approved helmet. However there are plenty of people out there who feel no compunction against riding down the highway at high speeds with nothing protecting their brain except a quarter-inch of bone. Their point of view is that if they want to risk serious head trauma or death, that is their decision. However, in the modern world, who will be paying for their extensive rehabilitation? Most likely, the taxpayer. No man is an island, and every decision we make has ripple effects throughout society. Acting irresponsibly has a societal cost, like it or not. And unless we somehow transform into a Libertarian paradise, this is not going to change anytime soon.