I wish I had written this:
“Eliminating failure is the surest way to kill success.”
Note to my mortgage-holder – As long as you’re thinking about cutting principal amounts, I’d like the principal on my mortgage cut in half, please. Please note that I’m not being greedy; I just don’t feel like paying anymore.
But the current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions.Â With low or negative equity, as I have mentioned, a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home.Â In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.
Lenders tell us that they are reluctant to write down principal.Â They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.Â Moreover, were house prices instead to rise subsequently, the lender would not share in the gains.Â In an environment of falling house prices, however, whether a reduction in the interest rate is preferable to a principal writedown is not immediately clear.Â Both types of modification involve a concession of payments, are susceptible to additional pressures to write down again, and result in the same payments to the lender if the mortgage pays to maturity.Â The fact that most mortgages terminate before maturity either by prepayment or default may favor an interest rate reduction.Â However, as I have noted, when the mortgage is “under water,” a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure.
Debt, shmet. Honor, shmonor.
If I have to stop paying my mortgage in order to qualify for the principal reduction, please let me know so I can start spending the money I have budgeted for “mortgage” elsewhere. I’d really like a new television. Maybe I’ll start ordering the fancy coffees rather than brewing my own, or perhaps go buy a new expensive car and then ask for the principal to be “written down” as soon as I drive it off the lot.
Apparently I’ve spouted the ethical and contractual obligations that borrowers have to repay their obligations for too long.
Honor and personal responsibility should have a place in our society. Sadly, that seems not to be the case.