Wednesday, January 6, 2010

Are Principal Writedowns the Answer to Housing Crisis?

An incredibly stupid post on CNBC by Diana Olick:

Most agree that the government's mortgage bailout program (Home Affordable Modification Program or HAMP) is at best unsuccessful and at worst detrimental. So now I'm beginning to hear more chatter about principal writedown, and more specifically, government-funded principal writedown.

The idea is to give folks equity back in their homes so they don't walk away from their mortgage commitments. It would also help borrowers who don't qualify for modifications because they are so far "underwater" on their mortgages. The arguments are plain and simple: Bite the bullet to save the greater housing market or don't because the moral hazard is far too untenable.

Anyone who's ever read this blog before knows where I stand. I would honestly rather see my home's value go down than see the guy next door (figurative: my neighbors are lovely and fiscally responsible) who made a poor/negligent financial decision get a mulligan at my expense.

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