John D. Geanakoplos and Susan P. Koniak are right to worry about the fate of borrowers whose mortgage loan principals exceed the market value of their homes. But the article’s argument for getting government (and community banks) involved in writing down these principals, although important, seems incomplete.
If, as claimed, such write-downs are truly “win-win” moves — allowing borrowers to keep their homes and giving mortgage holders a higher return than foreclosure — they may not need the government’s assistance.
Mr. Geanakoplos and Ms. Koniak contend that servicers, the agents who manage the loans for mortgage holders, currently have contracts giving them the incentive to foreclose rather than rewrite loans. But if so, then mortgage holders themselves have strong motivation to renegotiate those contracts, so that the servicers’ incentives are corrected.
That would be a win-win-win move (for mortgage holders, servicers and borrowers), and to complete their argument, the writers must show why it won’t happen.
Eric MaskinPrinceton, N.J., March 6, 2009
The writer, a professor of social science at the Institute for Advanced Study, is a 2007 Nobel laureate in economics.
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To the Editor:
John D. Geanakoplos and Susan P. Koniak present a compelling case for their plan to reverse the tide of foreclosures. The trouble is, nearly every recommendation I’ve read makes a compelling case — and they never seem to agree.
The fact is, nobody really understands the financial system we’ve built, and thus nobody really understands how to fix it. What is completely lacking is a deep and robust professional, institutionalized knowledge of how this creaky machine we’ve built operates.
We need a cadre of professional regulators. People who train in the profession of understanding, overseeing and regulating our financial system. And for that, we need to develop a new field of study, new training programs, new professional bodies akin to those that underpin the legal, medical and engineering professions.
Developing this new profession won’t solve the immediate crisis, but it will help avoid the next one.
Wayne BuckHamden, Conn., March 5, 2009
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To the Editor:
I am one of the responsible people who would be enraged to see my irresponsible neighbors get a break on their mortgages. Nonetheless, I could sign on to the Geanakoplos-Koniak plan if one element were added: a Congressional and presidential guarantee that an ironclad regulatory system will be crafted so that these abuses can never happen again.
Sadly, the coddling of those who got us into this mess strongly suggests that neither branch has the desire or the will to do so.
James FlemingPotomac, Md., March 5, 2009
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To the Editor:
Re “U.S. Sets Big Incentives to Head Off Foreclosures” (front page, March 5):
My wife and I both work in Manhattan and have been married for 10 years. We have two extraordinary children and rent in Queens. We first worked our way out of student loan debt, then credit card debt, and now pay all bills on time, while saving a little each month for retirement and college.
We live on the budget we have. We could never save enough to make a down payment on a house, so we never considered taking out a mortgage even during the “no money down” times because those came with future adjustable interest rates and it seemed foolish to make decisions based on imagined earnings.
Do we want to own a house? Yes. Do we expect help from the government? No. Clearly we are not part of the “new” America.
Michael RoyceForest Hills, Queens, March 5, 2009
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To the Editor:
Financial arrangements so incomprehensible that government regulators could not understand them, much less oversee them, contributed significantly to the current economic crisis. Treasury officials should try to explain to the average homeowner the new complex, possibly inequitable rules intended to stave off foreclosures.
Transparency still hasn’t taken hold in Washington.
Joel MandelbaumNew York, March 5, 2009
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