Transcripts

"Money File"-Who Should Help The Struggling Homeowner?

SUSIE GHARIB: In tonight's "Money File," should the government help homeowners who are at risk of defaulting on their mortgages avoid foreclosure? Here with some answers is Eric Schurenberg, managing editor of "Money" magazine.

ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: Nothing gets financially responsible folks more exercised than the suggestion that homeowners at risk of foreclosure should get help from Uncle Sam. People shouldn't borrow more than they can afford, the thinking goes and those who do, should pay the consequences.

While that argument has justice on its side, I'd suggest that you might be better served by a more pragmatic approach. Yes, foreclosures punish bad decisions, which is a public service, but they also hurt the innocent. Foreclosed homes tend to go vacant. They add to the glut of homes for sales. Both depress home values for people whose only fault is to live nearby.

So why not let the market settle it? The fact is, the market hates foreclosures too. Normally, lenders try to keep delinquent borrowers in their homes if at all possible case by case. But these days, the sheer volume of defaulting borrowers makes case by case impossible. So look at a ballot as a way of letting the market do what it would do anyway if it could. The plan organized by secretary of Treasury Paulson for example, offers a standard way of deciding which borrowers could afford their homes if they got a break and which couldn't even with help.

Another plan championed by Senator Durbin of Illinois would modify bankruptcy laws to allow a judge to make the call. Other plans would create a new bureaucracy for that purpose and put the tax payer on the line for any mistakes. That I think is risky. Yes, borrowers should read the fine print. They should not believe brokers who promise them they can afford overpriced loans. But the question is, how much unneeded pain do you want to impose on yourself just to teach them a lesson? I'm Eric Schurenberg.