Letters to the Editor
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‘Just Part of the Cycle’
The opinion of Edward Glaeser (whose columns I enjoy and with which I am almost always in agreement) that the federal government’s plan to stem the subprime foreclosure tidal wave is merely an effort to prop up housing prices and interfere with the housing cycle seems, to me, to miss the point [OpEd, “Just Part of the Cycle,” December 10, 2007]. If no steps are made to keep subprime borrowers in their homes, two adverse consequences will occur. First, more neighborhoods will suffer detrimental effects from vacant properties, with rising crime, dropping property values and all of the societal ills that accompany such things.
Second, lenders and other holders of subprime paper will suffer even greater losses due to their extended holding of inventories of foreclosed-upon properties for which they cannot obtain buyers willing to pay a sufficient portion of the balance owed by the defaulting borrowers. The inability of the holders of these foreclosed-upon properties to obtain such buyers is almost guaranteed by the fact that, as losses mount, lending standards will continue to tighten, and the ability to lend to even the best credit risks will be greatly reduced due to the illiquid positions of lenders. This cycle will feed upon itself for years to come, creating havoc in the financial industry and harming the overall economy unacceptably.
Attempting to keep subprime borrowers in their homes does not, therefore, present the moral problem posited by commentators of relieving borrowers of their freely-undertaken obligations or of propping up financial institutions whose lending practices were responsible for this problem. It merely indicates the knowledge by those responsible for maintaining this country’s strengths that everybody is better off if borrowers stay in their homes and pay their loans, even if the holders of subprime paper are not getting all they were promised. After all, those investors will be infinitely better off receiving a portion of what they were promised than receiving nothing and ending up as the unwilling owners of hundreds or thousands of properties that they cannot afford to maintain and for which no purchasers will or can pay even fire-sale prices that would allow the investors to take only a partial loss. Realistically, the only solution is for lenders and investors to accept re-negotiated interest rates that will allow the original, subprime borrowers to make appropriate, affordable payments and to stay in these homes. While some portray this as asking these lenders and investors to bear all the burden of this crisis, some might say that this is merely asking lenders and investors to realize the obvious: that is was a foolish idea to make loans, the terms of which dictated steep rises in monthly payments, to people who had less-than-sound credit and relatively low incomes — in other words, to those who had the least ability to absorb such steeply-increasing costs.
ROBERT RENZULLI
New York, N.Y.
P.S. Thanks very much for the addition of Patrick McIlheran to an already outstanding OpEd line-up.
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