there are two different groups of homeowners who are at risk of foreclosure.The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.
The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater.
The problems are many here. Any solution needs to be big enough to stop a meltdown, but there are both moral and practical considerations in bailing out people who could stay in their homes if they chose to but might be tempted to walk away just to save some money -- even at the risk of their credit ratings. And there is a moral problem in bailing out people who got caught short on an investment because they were greedy or unwise. The public resentment to any bailout is likely to be fanned by Republican obstructionists, and by many dubious progressives, but failure to act could have a further depressing effect both on housing prices and on the economy as a whole. It is in all our interests to fix the problem.
An interesting rhetorical moment for President Obama -- how to explain the solution he chooses? We should find out today.
David Leonhardt, "Bailout Likely to Focus on Most Afflicted Homeowners," New York Times, 17 February 2009.
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