Foreclosures: What's in a Home?
by Robert Russo
I was going to title this "Foreclosures: Blessing or Curse?", before I considered to most people foreclosures are unequivocally bad, even if theoretically they don't have to be. To someone who owns their own home (either in totality or with the help of a mortgage), the chance of losing it is a singular blow to a lifetime of emotional and financial wellbeing. Unlike rented property it carries the emotional/financial anchors of permanence, identity and posterity (not to mention most people save to buy only one home in their lifetime). But this is only speculation on my part because many people online never come close to buying their own home unless it is severely discounted, i.e. by a foreclosure. So it was as a financial opportunity that I first learned about foreclosures.
I would therefore say that whether foreclosures are good or bad for the economy depends on whether you are a buyer or seller, but unfortunately buying a foreclosed home may not be a reality even for those who try. Most "buyers" are actually creditors or companies scooping them up for resale, and auctions for private purchase are a secret goldmine for no one, competition driving the closing price close to retail. So this is a market in which there really are no buyers except those who can afford to buy at close to worth (or are very lucky). It is lopsided because one side controls it, unlike a true market, and now they are collecting.
So it is this whole system that only serves the creditors whether there are foreclosures or not. That system is what is bad for the economy so the solution is to reform it, not by giving credit and other incentives to pacify mortgage companies, but to crack down on those creditors putting them on an even playing field with the citizen in imitation of sale-by-owner real estate. (Libertarians often automatically oppose the idea of government regulation of private businesses, but corporations don't fit into the "citizen vs. state" contest, the libertarian model must be amended to include corporate entities which use the rights intended for citizens but wield the power of a state. The most common argument to this is "doesn't this mean my small business will be regulated too?". No. The word "private" has been overblown, an individual businessman making his own decisions has different rights than a corporation where no individual makes those decisions.)
Foreclosure is a type of debt, and debt is a controlling, manipulative business. As long as it has existed collection of this severity was inevitable, like the debtors' prisons of centuries ago. To fix it one must graduate from the belief that establishment is good and that lending is an honest deal, to the libertarian view that establishment is corrupt and we must throw our clogs into it. Creditors aren't friends of ours giving out mortgages out of the goodness of their hearts, they are companies setting collateral aside (your house) to ensure they don't lose their investment. Whoever cares about people losing their homes must side with the citizen even if it means taking unfair advantage of mortgage companies to keep those homes, because corporate entities are not human and don't have families. They are strong establishments, that is why they can afford to give mortgages. They were meant to be taken advantage of.
The big argument to this is that as soon as the incentive to give mortgages is threatened, either by government or the citizen, creditors will stop creating these opportunities and only those who can afford to pay outright will buy homes. But demand creates business. It created these crediting businesses, which live by this sword and can also die by it. The economy can't take stagnancy, as soon as something is outlawed a black market appears, when currency is in a vacuum people print their own. ("The spice must flow" as Frank Herbert would say.)* We citizens rightly control the economy but we don't exercise this power.
We have to revive these arguments or anyone who forgets is at the mercy of whatever they are told to believe. Property used to be a right people claimed just by getting there first. One's home was where they spent their entire life. We see in old photos the dilapidation of houses that were literally outlived, one's dependency on their one piece of ground sometimes a curse. Now the concept of a home is becoming extinct, people are buying them as investments for eventual resale, not truly "living" in them which would decrease the value, maintaining them as showrooms to impress the stranger.
If foreclosures can't be stopped because it would give people unlimited credit toward a debt they will never pay back, then the least we can do is make it a healthy market so that for every citizen who loses their home another gets one. To do this we must eliminate "middle man" companies that have cornered this process and take their own cut, such as HUD and private resellers. HUD is a public service which facilitates the buying of foreclosed and other distressed properties, but there is a long eligibility process, frequent home inspections and a set rate of the purchase price. It's like taking a used car to CARMAX and watching the dealer open up his blue book, instead of going to the Trading Post or Craigslist where it's possible to trade a rustbucket for a bmw. A free market would not only give people the chance to own a house they could not normally afford, but if a homeowner is negotiating the sale of his own foreclosure it may be possible for him to get it back someday.
Gov. Kaine's bill to ward off foreclosures by giving homeowners more time was approved by the House on Thursday, updates can be found at www.forbes.com/feeds/ap/2008/03/06/ap4743029.html.
*http://en.wikipedia.org/wiki/Dune_%28novel%29
Question of the Week: In your current financial situation, is the word foreclosure more likely to be a potential nightmare or opportunity? Of all the measures being proposed right now is there one that has your endorsement? Send your thoughts to russo@richmondliberty.org.
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