A piece today in The New York Times gives a synopsis of the Obama Administration’s attempts to save homeowners from foreclosure. The Administration identified some four million homeowners that were in need of help but it’s U.S. Treasury administered home loan modification program was only able to help a fraction of those homeowners. According to the article, President Obama acknowledges that the Administration did not do enough.
I don’t think Mr. Obama should be so hard on himself. The problem wasn’t the failure of the Administration in addressing the problem. The failure was the decision of the Administration to insert itself into the foreclosure process to begin with. Government’s role should not be to create markets or modify contracts outside of court. There was no financial infrastructure problem here for the Administration to resolve. This was not a regulation of commerce issue.
Homeowners had already accessed the financial markets to obtain initial loans. Their inability to modify a loan was a reflection of the lack of capital, insufficient credit history, and insufficient income necessary to create confidence in a lender that the lender would receive interest and principle from the loan. Having government make a market in these instances was not in the public interest. The public interest would have been better served by allowing homeowners to follow the natural course of foreclosure and have homes move into the hands of able and willing buyers at a discount.
All the Obama Administration did was to appease a mindset that says we are entitled to homeownership. No. We are entitled to live in habitable environments pursuant to basic human decency and human rights. We are not entitled to the government stepping in and keeping us financially whole.
While we are entitled to government ensuring a working infrastructure for the movement of goods, services, capital, and credit, we are not entitled to government ensuring that each vehicle that is on the highway can drive effectively down the highway.
How we best navigate the financial system is up to us.