Why You Should Be Glad Your Neighbor Gets Mortgage Help and You Don't

First, fall on your knees and thank your lucky stars you have a good enough job and good enough health to be able to afford your mortgage.

Second, realize that if your neighbor qualifies for mortgage help under President Obama's new housing rescue plan, it's because your neighbor has suffered financial setbacks like losing a job or incurring major medical expenses of which you shouldn't be envious.

Third, observe your neighbor's house for a few minutes and consider how it would affect your own property value if that house were empty, neglected, trashed by squatters or taken over by drug dealers.

Hilzoy has a terrific simple explanation of how President Obama's housing rescue plan really works.

The second of these steps is the only one that could possibly be said to help people who took out loans they cannot afford at the expense of the rest of us. (The first and third are aimed at different problems entirely.) You don't have to be in default, or late making payments, in order to qualify for it. You do, however, have to be paying more than you can realistically afford.

Some people are paying more than they can afford because they knowingly took out mortgages that were too big -- perhaps counting on being able to refinance or sell their home once their teaser rates ended. Some are paying more than they can afford through no fault of their own: they lost their jobs, had unexpected health crises, etc. Some are probably in between these two camps: people who talked themselves into accepting loans that they probably couldn't afford, or could afford only if everything went right, and then things went wrong. And some were probably defrauded.

Under normal circumstances, I'd be opposed to the government stepping in to encourage banks to modify these loans, except in cases of fraud. But these are not normal circumstances. The economy is melting down, and foreclosures are a big part of the reason why. Foreclosures always impact people other than the people foreclosed on, for instance by driving down neighborhood property values. But now, of all times, they are having massive impacts on the rest of us. And the Obama plan, which does not just wave a magic wand and make people's excess debt disappear, seems to me like a good start on addressing them.

Read the whole thing.

Cross-posted at They Gave Us A Republic ....