NY Times: Dear Sane Homeowner: Stop Whining About Your Neighbors. Please.

[MattH]

Article

Think about it: under the Freedom Recovery Plan, homeowners would have the ability to turn over their deeds to their lenders, but stay in the house, paying rent for five years. (In the hardest-hit parts of the country, the rent would most likely be between 50 and 75 percent of the mortgage.) After five years, they would have the right to buy back the house, paying fair market value.

Handing over a deed to a lender is a hard thing for any homeowner to do, even without the official stigma of foreclosure. Who would take advantage of it? One category, clearly, are those who can’t afford to make their mortgage payments. There would also be people who view their situation in purely economic terms; even though they can afford the mortgage, they would rather walk away because of the decline of the home’s value.

But everyone else with an underwater mortgage — indeed, the vast majority of people in that circumstance — would undoubtedly decide they were better off continuing to make mortgage payments and wait for the market to recover. Why turn over your deed if you don’t absolutely have to?

Of course, the fundamental problem with any homeowner bailout plan—and a large part of the reason why it's taking so long for policymakers to reach agreement on its details—is that it needs to be generous enough to have a substantial impact but not so generous that it encourages too many people who do not actually need a bailout to take advantage of it.  Basically homeowners fall into three categories: those who will be OK without any bailout, those who are probably cannot afford to stay in their homes even with lots of help, and those who could make it if given some assistance.  The challenge is to structure a plan that maximizes the help given to those who need and would benefit from it, while minimizing the money wasted on those who either don't need help or cannot realistically be helped.

And in a disaster of this magnitude, just as in a wartime medical clinic, moralizing and philosophy must take a back seat to cold-eyed realism.  Triage isn't about judging how people got into their current situation or figuring out their long-term goals, it's about making hard decisions about how limited resources can do the most good.