Taking on the Banks With Mortgage Cramdowns

real-estate-investment-property-foreclosure-reo 1

I haven’t been one of the people endlessly beating the drum for principle-modification for people with “underwater” mortgages since it seemed to be off the table. But with the White House deciding to turn in a more populist direction vis-a-vis the banks, Pat Garofalo is right that it should be put back on the table. Given that we’re still in a period of ongoing economic distress, it seems to me to make a lot of sense to focus on something that will help people in concrete ways in the near term. Better regulation for the future is nice, but if there’s going to be a big fight it’d be nice to actually have some specific ways in which it would benefit people.

It’s also worth emphasizing that this has indirect benefits for many people who would not be among the direct beneficiaries. For example, I tried to take advantage of the fall in housing prices and my good credit to pick up a condo in the midst of the fall 2008 panic. So no underwaterness for me. But if too many of my neighbors end up foreclosed on, that hurts all of us who live in the building—condo fees go up, and the supply of vacant units both depresses the value of our existing ones and scares new people off of buying anything.