Mortgage Bailout Fairness – Yes

If fairness is strictly about treating everyone exactly the same, then it is obviously not fair for some people to not only have to pay their own mortgages, but to also have to pay someone else’s mortgage, directly or indirectly. But hold on to your toes, because I am about to step on some.

The definition of fairness with which we began is one held primarily by children. That’s not fair! may be the charge leveled by the six year old against parents who allow the fifteen year old to stay up later than the six year old. Certainly, the parents are treating their children differently. But the practice of allowing older children to earn more privileges is part of a healthy strategy to help them mature. Similarly, a child who just had her tonsils removed may be given more cold treats, like milkshakes and frozen fruit smoothies, during recovery than her siblings are allowed. Unfair? Yes, according to the six year old’s estimation of fairness. But mature adults realize there are good reasons for the differences.

Let’s look at the reasons mortgages stop being paid, and then some good reasons for helping those who are having this difficulty, and take a more mature look at what is fair for the greatest number of people.

First, we would be well advised to acknowledge that the mortgage mess is a more complex issue than this brief article can fully address. Certainly, there are people who work the system, try to get away with as many cookies as they can steal from the jar, and then lay the blame on someone else for their own irresponsibility.

But there are a number of people in a mortgage bind for other reasons.

If you are the one unable to pay the mortgage, you probably have a very good explanation for how that happened, and it is likely not, in your opinion, your own fault. In fact, it is likely to be the result of a lack of fairness in the job market, the mortgage lending industry, the health care system, or natural disaster.

For example, several months ago Americans were informed that we have been in a recession since late 2007. One of the effects of a recession is job losses. Mortgage payments are hard to make without a job at the same pay rate, or without a job at all. The decisions to borrow and lend were based on the expectation that the borrower’s job would continue to exist. That is not an unreasonable expectation, but during a recession, the unexpected happens more often.

Another factor in the difficulties in keeping up mortgage payments are medical expenses compounded by insufficient insurance coverage. Sarah Lovenheim reports in the Washington Post online that in 2007, sixty-two percent of bankruptcies were associated with medical expenses. It is more than likely that the mortgages of those filing for bankruptcy would be difficult to pay.

Now that we have noted that circumstances the last several years have been converging to make it more likely that people will be unable to pay their mortgages as originally negotiated, let’s consider what may happen if we enforce the child’s concept of fairness and refrain from providing funds to keep people in their homes.

Homelessness increases, adding further strain to social services.

Neighborhood turnover increases, decreasing the stability of communities.

In those areas where mortgage defaults are quite numerous, and there aren’t enough buyers for all the empty houses, vandalism and other crimes can become more of a problem. This puts neighbors at risk, and puts a strain on local law enforcement. Property tax revenues fall.

Increased taxes to cover social and police services, financial losses due to crime, and housing value losses are likely to occur in these situations.

The indirect expense of allowing a large number of people to lose their homes because they can no longer meet the original terms of their mortgages is likely to (no one can be sure to what extent) exceed the unfair cost of an effective program that will keep people in their homes by making it possible for the lending institutions and mortgage holders to make satisfactory new arrangements.
The benefits of such programs depend heavily on the funds being used to actually help people avoid default. Sadly, there is no guarantee that funds will always be properly managed, but that is another question for another article.

Is it fair to force people who have faithfully paid their mortgages to bail out those who haven’t? It is less unfair to them than having to deal with the fallout of widespread homelessness and abandoned homes.