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.
