Why foreclosure relief is a recipe for disaster

(A quick salute to everyone who still checks in here periodically. Which is no one, I reckon.)

Foreclosures are kind of like sex with Kobe Bryant -- you can fight all you want, but they're going to happen.

The federal government has unveiled a new recipe for failure to tackle the current foreclosure "crisis" in the United States. You can read all about it here: http://makinghomeaffordable.gov/docs/FHA_Refinance_Fact_Sheet_032510%20FINAL2.pdf. It's convenient -- very convenient -- to believe that this is all the fault of the mortgage companies. We'd like to blame them because they were not getting all of the documentation they should have been getting, and we'd like to blame them for giving loans to folks that should not have gotten loans. It's easy to blame the banks, and, surely, the banks have their roll to play in the housing boom and bust.

The buck cannot stop there, however, because it takes two people to tango. There were some unscrupulous mortgage brokers assuring folks that they could get a loan for them -- and then fudging some data in the mean time -- but this pre-supposes that someone wanted to buy a home. This someone would be the homeowner. This homeowner was likely living somewhere before getting their new home, either under the good graces of friends and family or renting on their own. So, I'm going to presume that the average prospect looking for a home isn't rushing out to buy house for a place to live; rather, the average buyer is looking to voluntarily purchase a home.

And then something happens. There's an accident. There's the loss of a job. Suddenly, the purchaser of the home cannot make the mortgage payments. So, there's a few choices: drain your savings to keep paying; ask for a modification; quickly find another job to cover the cost of the house; let the house go; kick and scream on the floor; etc. In this economy, finding another job within a few weeks is nigh impossible, and the other options will likely be temporary fixes (it's hard to make payments under a modified plan if you don't have a job). That leaves only one choice: leaving with some dignity.

Rather than accepting reality, we turn to the government for assistance. The problem with doing so is that the government is full of politicians. We might as well compare them to those snotty, good-looking kids in high school that parading around their titles on student council like they meant something outside of the building walls. It is political capital to support measures that will save a person's house. Nothing is more noble than to defend someone's property, especially someone's home. Yet the difference between a person's car loan and house loan is that most people prefer not to live in their car -- in both cases, the property is collateral to be forfeited or sold to cover the remainder of the loan principal in the amount of a default. So, why aren't government officials clamoring about saving someone's car? Personally, I'd rather rent an apartment than lose my car -- I need my car to get to work every day, which is important to make money.

These measures taken by the political figures in Washington, D.C., are futile unless jobs are created, and the delaying tactics provide time for people to get those jobs. Unfortunately, too little effort has been put into creating those jobs. Plus, these sorts of measures frustrate the lenders, who know that most of their debtors aren't going to be able to make modified payments. Why delay the inevitable?

Why, to pick up some votes, that's why.

Plus, no one talks about the merits of foreclosures. What merits, you ask? Consider the following:

* Private debt in the United States is estimated at $36 trillion. This is almost 300% of the national GDP.
* Foreclosures, when coupled with Chapter 7 bankruptcy proceedings, can eliminate the largest liability many individuals and families may have.
* Since the beginning of 2009, the amount of private debt outstanding has decreased from $36 trillion to $34 trillion, largely due to the large number of defaults, modification of loans, and a slowing of private debt.

How can we make sure that this doesn't happen in the future? I think this is where our country needs to look at the education system very carefully. Here's what is currently required from high school students in Ohio through 2013: English language arts (4 units); Health (1/2 unit); Mathematics (3 units); Physical Education (1/2 units); Science (3 units -- at least 1 of Biology and 1 of Physical Sciences); Social Studies (3 units -- at least 1/2 of American history and 1/2 of American government); Electives (6 units -- at least 1 unit or 2 half-units of Business, Technology, Fine Arts or Foreign language). Maybe if we made Business, Finance, or any course that teaches the management of personal resources over a period of time (actually, the Ohio curriculum includes Economics and Financial Literacy) a requirement to graduate, we might actually have some assurance that future generations will be able to plan and project their financial lives.