October 30th, 2008
07:33 PM ET

Mortgage justice is blind

John D. Geanakoplos and Susan P. Koniak
Op-Ed Contributors, The New York Times

The current American economic crisis, which began with a housing collapse that had devastating consequences for our financial system, now threatens the global economy. But while we are rushing around trying to pick up all the other falling dominos, the housing crisis continues, and must be addressed.

We start with this simple fact: Too many families are being thrown out of their homes when it makes more sense to let them stay by “reworking” their mortgages — adjusting terms to make it possible for the homeowners to meet their responsibilities. In many cases, adjusting loans would help the homeowners and the lenders: the new mortgages would have lower monthly payments that homeowners could afford to pay, and would end up giving the lenders more money than the 50 cents on the dollar that many foreclosure sales are bringing these days.

The presidential candidates have proposed plans to help some homeowners and mortgage-security holders by buying out loans or putting a moratorium on foreclosures. We have a plan that would be much less costly than buyouts and more comprehensive than a moratorium.

In the old days, a mortgage loan involved only two parties, a borrower and a bank. If the borrower ran into difficulty, it was in the bank’s interest to ease the homeowner’s burden and adjust the terms of the loan. When housing prices fell drastically, bankers renegotiated, helping to stabilize the market.


Filed under: 360° Radar • Economy
soundoff (5 Responses)
  1. David Rhodes

    We bought our house 4 years ago at the peak of the california housing market,but we did the math first-We knew what we could afford and not afford.So we bought a house within our means,not some mini mansion with some exotic ARM so that we could afford it for a while and worry about the loan adjusting later.What about us and our fixed 30 year loan??Why should the govt. bail out people that took out these exotic loans to buy a house way above there means?What benefit is the Govt.going to give to the people that have traditional loans and are making the monthly payment on time every time?Why should my taxes go to bail out people that knew that they probably would not be able to afford their house when the ARM adjusts.
    Dave from California

    October 31, 2008 at 11:57 am |
  2. Rod

    Justice has been blind for eight years and still is today. I do appreciate another story to bolster my beliefs. The bankers are applying the bankers "Golden Rule." Those with the gold, make the rules. Not the same golden rule I was taught, but that rule is in a book not embraced by bankers. The way I see it is the banks hold the property, write off the losses and the longer the stink continues the banks can request more of our tax money and get it. If you're the head of a bank, just like the CEOs at Lehman and AIG, you're still selfishly making money. Their attitude, "Screw'em." Or is that Scrooge'em?

    October 31, 2008 at 7:46 am |
  3. ralph

    I have an old mortgage that has almost the same set up as a sub prime loan only it started out at 10% and can only flex to 6% for a low interest rate at credit union. they may only change interest 1% per year so trouble on the horizon at least for me can be foreseen. The big difference is mine is for $40000 not $400000 because I owe 10% of debt per payment. In other words my max payment is $400 while the exact contract for higher dollar amount is $4000. This is a great loan for me and a disaster for the higher dollar amount. Another point I feel that is being overlooked is home values are going down because dollar purchase power is going up. The value of our Homes has never changed only the value of money.

    October 31, 2008 at 4:50 am |
  4. nelson

    To get your facts straight it did'nt start with the housing collapse, it started withe the realtors and Brokers OVER INFLATING THE HOUSING MARKET and now there pockets are stuffed with money and now those pirateers are re-marketing the same old product to stuff there pockets again, with no repercussion to alter there greedy ways, now thats just {STRAIGHT TALKING}.

    October 31, 2008 at 1:55 am |
  5. Ed

    Let every foreigner with $100K cash and a college degree to spend this cash as down payment towards one of the millions of foreclosure homes in the USA in exchange for a "green card", can you think of any other way to grow humans domestically to fill these homes, boosting real estate resulting in good economy overall ?

    America, as always needs immigrants to keep the economy going.

    Additionally, legalize the 11 million undocumented so that they can feel permanent, start paying taxes and start buying affordable homes.


    October 30, 2008 at 11:43 pm |