The NBC Sunday morning new shows were again talking about moral hazard as applied to efforts to stem the tide of foreclosures. This concept looks at the message we send when we rescue a homeowner who took out a bad loan and give nothing to the prudent homeowner who didn’t take an exploding ARM loan.
Should I thwart efforts to bail out my next door neighbor who was foolish because it rewards the fool, and gives me nothing?
Personally, in these circumstances, I am not offended by mortgage bailouts. Seems to me to argue that the improvident (or the simple) should pay the price by loss of their homes to preserve the high moral ground for those who didn’t succumb is short sighted.
If my neighbors lose their homes in foreclosure, the value of my house goes down. If several neighbors lose homes, I’m neighbor to the bank’s REO department and the neighborhood becomes at best less sociable, at worst, less safe. I don’t count on the bank in the house next door to loan me a cup of sugar.
The beauty of the bill to permit judicial modification of home mortgages is that it costs the taxpayer nothing; preserves families and neighborhoods; and merely recognizes the loss in home value that the homeowner and the lender have already experienced.
I’m perfectly OK with that.