Finally Support for Principal Reduction for Borrowers

New Orleans For not months but years, we have argued for principal reduction as the only realistic response to the foreclosure and homeowner crises in housing, and I have been clear that the main obstacle has been the collaboration between the banks that don’t want to reduce their balance sheets to reflect reality and the coddling Treasury Department and others in the Obama Administration that are codependent with this ridiculous proposition.  All of which made a smile come to my face reading the editorial and op-ed pages of the Times today, where smiles are few and far between, but there was new columnist, Joe Nocera, citing Laurie Goodman, senior managing director of Amherst Securities, as loud and clear, “data driven” voices now advocating the call for principle reduction of mortgages.

The arguments were clear and concise from Goodman:

  • Of 55 million mortgages more than 10 million she reckons are likely to default, largely because they are underwater…in other words the borrower owes more than the current value of the property.
  • Supply is going to “outstrip demand.”  Goodman estimates a glut as high as 6.2 million properties over the next 6 years, largely because the economy (add changing social mores in my view) are slowing “household formation.”  Young people without jobs are not making commitments backed by real estate.
  • She argues that only principal reduction can save the market because, as we have argued, “A borrower will make a decision to default if it is in his or her best interest.”  Hello!

Line forms in the rear, but let’s move it along before another million or two lose their homes!

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