Monday, July 04, 2011

Mortgage Lottery Tickets

There appears to be a program that is targeting borrowers who haven't paid their mortgage in 3 months, have had a 15% loss in income, and live in their mortgaged property. As part of a $1B national program, 1500 lucky Minnesotans will receive a $50k no-interest loan after filling out a bunch of paperwork, and they don't have to pay it back at all if they then live in that home for 5 years.

This seems to have all the wrong incentives. Why pay on your mortgage if you have had a decline in income given this carrot? In lending, ability and willingness to pay are key variables, and it seems government is doing everything it can to make people believe those who pay are suckers. As traditional lending then dries up, leaving only FHA lending, the housing market remains depressed. Further, most people who don't pay will just make it harder for them to get loans in the future and won't receive the windfall, as it is decided via a lottery.

Recessions are bad things, but the key is that people need to find new lines of work where their services are needed, that will pay them what they think is their best wage. These programs simply slow this process down, as people hold out for the latest government give-away that encourages having lower income. Further, most people won't receive aid, so luring them into this complacency just makes them less motivated and ultimately poorer.

3 comments:

montanna said...

Only sign up for guaranteed payday loans when you are certain which you are ready for them. Waiting until you are ready will save you tons of problems in the future.

r2d2 said...

Reminds me of the US visa lottery, which pretty much says "everybody gets a chance, just be patient and stay in line". This one tells people "there is still hope, don't dump your house just yet".

Mercury said...

Amen.
It's not just Minnesota either. One wonders how much weaker consumer spending would be without this kind of crap or the anticipation of such windfalls.

Come on fellas - let markets clear already. You suck at central planning.