Congress Can Take the Blame for Foreclosures

Bureaucratic confusion: Government programs sound inspiring, but policy makers don't work in the loan modification departments at lenders and servicers. Many people who work at these companies don't understand the rules of older programs, much less the latest foreclosure prevention plan from the Obama administration. And there aren't enough trained people who are empowered to make sensible decisions quickly.

Economic disincentives: First, it's easier and cheaper to turn defaulted mortgages over to foreclosure attorneys, whose business is booming. The banks can write off the loans and move forward, wasting little of their employees' time.

Second, many of those loans carried private mortgage insurance, which protects lenders, who are no longer worried about taking losses at foreclosure sales. Perhaps the $1,000 the government plans to pay mortgage-servicing companies for each loan they adjust will offset these disincentives.

Shifting burdens: When a home falls into foreclosure, its residents must move. Often, they have nowhere to go. The number of homeless families is on the rise, putting the burden of the housing crisis on taxpayers. Meanwhile, foreclosure sales leave houses empty and vulnerable to vandalism, which saps property values even in nice neighborhoods.

I believe in free markets. But the free market in housing ended when Congress pushed banks to lend to unqualified borrowers and forced Fannie Mae (FRE Quote) and Freddie Mac (FNM Quote) to underwrite questionable mortgages, and when the Fed kept interest rates artificially low and inflated the real estate bubble.

Those actions fed the housing boom, and ensured that Congressmen were re-elected.

There's been a lot of discussion in recent months about who "deserves" to endure the consequences of foreclosure. But who will be the judge? If this recession continues, how likely is it that more unsuspecting homeowners, maybe some in your neighborhood, will be caught in this sinkhole?

It's time for leaders in Washington to stop blaming lenders, borrowers and everyone but themselves. We need a sensible system that aims to keep people in their homes until the economy turns around. And that's The Savage Truth.