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collective bargaining for homeowners?

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A construction-press headline says a housing recovery will have to wait for a recovery in jobs; an economist on the radio opines that the economy will have to find something else to drive consumer spending until the construction sector revives. Maybe I'm thick, but both of those statements sound completely out of touch with reality. Housing will recover when jobs return? As the industry hardest hit in the recession, construction is where the biggest chunk of those missing jobs disappeared from. If people aren't buying, selling, building, and furnishing houses, it's hard to see where a jobs recovery will come from. And saying that we'll have to find something else to drive consumer spending is like saying that until the air supply increases, we'll have to find something else to breathe. That kind of thinking is crazy enough to lead me to a crazy thought of my own: A mass strategic default by mortgage holders.

This is more a thought experiment than a proposal, but bear with me for a minute. The housing market is frozen because millions of homeowners are underwater. When houses sell, lenders insist on being repaid the balance of the mortgage--a deal's a deal, after all--and only desperate owners will pay for the privilege of unloading their house. But as a wave of "strategic defaults" made clear within the past couple of years, there is an alternative path. And while default has credit consequences for the borrower, it's not illegal. No bank wants foreclosures. The process is costly, and the dollars recouped are far less than even the current, depressed, market value of the foreclosed property. So why don't the banks renegotiate mortgages to reflect current values? It would boost existing home sales, stabilize prices by bringing non-distressed properties onto the market, and hasten a recovery in construction and related sectors of the economy.

So why don't the banks face up to reality, accept some responsibility for feeding the housing bubble, take their lumps and move on? Because no one has forced them to. And as long as they can face down borrowers one by one, they're still in the driver's seat. That would change if a group of underwater homeowners were to join together and bargain collectively with their lender. If one of us defaults, they might say, you have a small problem. If we all default at once, you have a big problem. Now, what are you going to do to keep that from happening?

Just a thought. --b.d.s.

 

 
 

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