New Household Product Idea: Debt B’ Gone
The New York Times’ editorial published yesterday, “Helping the House Poor,” echoes in more ways than not the observations of Wall Street and Maine’s bureau manager and chief bottle washer Bill Gloede, who wrote about the Obama housing plan immediately after the President unveiled it.
The key conclusion of the Times’ editorial:
A better way to lower the monthly payments for these people is to reduce the principal remaining on the loan. That way, the payments become affordable and, as equity is rebuilt, the borrower has both an incentive and the means to keep current. The Obama plan provides subsidies for lenders to reduce principal balances, but the option is not promoted as prominently as simply reducing the interest rate. That’s a shame. It is a better way to go, but lenders prefer interest-rate reduction to principal reduction, in part, because it appears to minimize the loss they have to recognize upfront.
This is where Congress can make a difference. On Thursday, the House passed a bill that would allow bankrupt homeowners to have their loans modified in bankruptcy court, where the most common solution is to reduce the principal. The bill is overly restrictive, but if passed — and if the Senate doesn’t weaken it any further from the House’s version — it could give underwater homeowners another way to keep their homes.
Perhaps more important, lenders are more likely to pursue sound modifications if the alternative is to face the borrower in court. Best of all, modifying loans via bankruptcy proceedings costs the taxpayer nothing. The costs are borne by the borrowers and the lenders.
Homeowners — like the banks, much of corporate America and the government itself — are suffering under the weight of excessive debt. The Obama plan will make mortgage indebtedness more manageable, but ultimately the debt itself needs to be greatly reduced. The sooner we as a nation move in that direction, the better.
Hence, we need a consumable packaged good product–”Are You Listening Procter & Gamble and Unilever?–Debt ‘B Gone.
Comments
Leave a Reply