With more than six million homeowners foreclosed on in the past three years, and an estimated three million headed there this year, it's hard to see where the buyers will be for all of the homes coming back onto the market. Giving defaulted borrowers a second chance at homeownership, as some mortgage executives are
In the process, it might help housing prices recover, or at least help stop them from falling much further.
But that would work to the disadvantage of another group of potential homeowners, those who can't afford to buy a house because prices remain high, by historical norms. Policies designed to boost homeownership can have the uninteded effect of putting homeownership out of the reach of many consumers, or encouraging them to stretch too far.
And such policies may not be necessary, or even desirable. As Alex J. Pollock, resident fellow at the American Enterprise Institute and former president and CEO of the Federal Home Loan Bank of Chicago, pointed out in a recent
In an online poll this week, 36% of respondents said it would be dangerious to give borrowers who have been through a short sale or foreclosure a second chance at homeownership sooner than the now-standard five year, and that government policies that encourage homeownership already go too far. Another 27% opposed the idea because it would be unfair, creating a moral hazard.
But 20% said it was only fair to give borrowers who have defaulted or been through a short sale a second shot sooner, since many people lost their homes due to circumstances beyond their control, and 17% said it was necessary to avoid a delay in the housing market recover.
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