When the government gets involved in a particular segment of the market, it often creates distortion and waste, as well as providing services that may not be needed or desired by the target markets. Also, since there is no incentive to maximize returns or keep costs down, the programs can cost far more than the benefits they bring to one group or another. And worst of all, funding such central planning schemes is always involuntary.
The government's programs over the past few years to stop the foreclosure crisis have all been excellent examples of bad ideas with overly optimistic promises that soon failed. Many of these programs were designed to assist borrowers in negotiating with their lenders for loan modification plans or other solutions. While no homeowner was given the choice to fund the plans or not, the programs encouraged only voluntary participation by lenders.
No wonder they all failed. Homeowners and consumers in general were forced to pay hundreds of millions or billions of dollars to fund programs to stop foreclosure, while the lenders and mortgage servicing companies did not have to participate in actually offering assistance. More resources were diverted from the people who were struggling with their bills in order to pay bureaucrats to encourage lenders not to take advantage of borrowers.
All the while, the banks were also taking hundreds of billions of dollars in free handouts as their reward for taking advantage of borrowers. Blackmail and threats to destroy the economy if they did not receive one bailout after another convinced lawmakers to reward the banking industry for its moral hazard and poor lending decisions. As a consolation prize, homeowners facing foreclosure got robbed more and were shown a few half-hearted modification programs.
HOPE NOW, Project Lifeline, Hope for Homeowners, bankruptcy cram-down provisions -- all have failed to affect the high foreclosure rates and falling home values in any meaningful way. And even if the programs had not existed at all or had been funded at twice the level they were, very little would have changed. The fact that so many players in the real estate industry took advantage of the cheap money from the Federal Reserve now means that a correction will have to happen.
Now the newest program is the Obama administration's Making Home Affordable Modification Program (HAMP). Although this latest plan requires participation by some lenders and servicing companies, it is still facing some of the other problems which plagued earlier plans. There is little oversight, no accountability, and evasion of obligations under the plan by the mortgage servicers.
Can one more government program, department, or regulatory agency really save the country from an economic crisis caused by too much government involvement? Or are all these programs just excuses to give the feds and the banks more control over the economy while pretending to solve problems? Do we keep spending trillions of dollars to rewards the banks and hundreds of millions to help homeowners?
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Nick writes for the ForeclosureFish website and blog, which educate homeowners on how they can avoid foreclosure and beat the bank. The site describes nearly a dozen ways to prevent losing a home, including deed in lieu, loan modification, stopping a sheriff sale, and others. Visit the site today to read more about how foreclosure works and learn how to fight back against foreclosure: www.foreclosurefish.com/
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