patrick.net

http://ochousingnews.com/blog/suprisingly-mel-watt-forgiving-principal-underwater-loans/

In apparent recognition that principal reduction is a bad idea, Mel Watt is not forgiving debts on underwater loans owned by the GSEs.

Principal reduction is the worst policy option. The economy is weighed down by excessive mortgage debt, causing borrowers to pay money to lenders that would otherwise be spent on goods and services stimulating the economy. The proper macro-economic solution suggests removing this debt would boost economic growth, but how should this be accomplished? There are two options: (1) foreclosure and bankruptcy, and (2) widespread principal forgiveness. Advocates on the political left want to see principal forgiveness. Conservatives, on the other hand, point to the problems of moral hazard, the central issue in the housing bust.

Every decision we make in life has consequences. If we save regularly and invest wisely, the consequences are wealth and peace of mind. If we spend foolishly and speculate wildly, the consequences are periods of feast and famine, delusions of grandeur, enormous entitlements, and when times are tough, unbearable stress. Positive results come from good decisions and visa versa. That’s how people distinguish wise from unwise and learn to make decisions to achieve positive and desirable ends. When people do not endure the negative consequences for their poor decisions, they come to regard their poor decisions as wise ones, and they repeat the same mistakes.

Source: http://ochousingnews.com/blog/suprisingly-mel-watt-forgiving-principal-underwater-loans/#ixzz38ra4b436

#housing