Isn’t it unfair to bail out irresponsible homeowners who took on too much leverage?
Clearly some homeowners took on excessive amounts of debt to fund consumption. However, other homeowners took on debt and liabilities that they did not fully understand (see the paper by Brian Bucks and Karen Pence (PDF)). The overarching concern of our proposal is the adverse effect of falling housing prices on the economy. To this end, we propose sharing losses between homeowners, lenders, and taxpayers. Without taxpayer participation, it will be hard to move mortgages out from under servicers and restructure the debt to avoid the continued spiral in housing and the economy. Taxpayers will have to bear some cost of the excesses, as they already have. Doing nothing puts the taxpayers at risk of greater losses on the almost $6 Trillion of existing mortgage guarantees and obligations. This proposal requires borrowers to give up a share of future appreciation in order to participate. Lenders must eat a portion of the losses as well. Everyone gives a little bit.
Related Questions
- Isn’t this unfair to agencies, institutions and organizations to be sued now for events that happened decades ago?
- Isn’t the state of Ohio constitutionally bound to bail out STRS Ohio if it can’t meet its pension obligations?
- Isn’t it unfair to bail out irresponsible homeowners who took on too much leverage?
