The Limits of Sympathy for Homeowners in Trouble

Chadi Moussa is a man in trouble, The New York Times reports today. He is unable to afford the mortgage on his $2.24 California mansion – and yet ineligible for help under the Obama administration’s new housing plan.

From The Times:

“You give $25 billion to a bank, at least they should help people stay in their homes,” Mr. Moussa said. “But once you get to big loans, nobody’s doing anything about it.”

I’m guessing there’s a reason for that.

But let’s let Mr. Moussa go on:

For Mr. Moussa, the road toward foreclosure has been precipitous. He bought his home in 2005 for $2.24 million, with a down payment of more than $500,000, and monthly payments of $4,000 for the first year. But as California real estate prices plummeted, his house’s value fell to about $1.1 million, he said. Then his income dropped by half.

After he defaulted on his mortgage five months ago, Mr. Moussa said he asked his lender, Countrywide Financial, to change the term of his loan to 40 years and to lower the interest to 4 percent until the car business revived.

“Two days ago I got the answer that at this point they can’t do anything,” he said.

Mr. Moussa now has monthly mortgage payments of $8,700 and a home that may never recover its equity. The stress has eroded his marriage, and his wife and daughter are now with her family in Beirut.

His frustration was evident in his voice. “I can make $5,000 payments per month. Why not do that for me for a couple years? Why take it away, sell it” for a huge loss, he asked. “In my area, half the houses are in foreclosure or short sales. And some of them have been stripped down, everything torn out.”

I may be venturing into Rick Santelli territory here when I say I’m having a hard time shedding a tear for Mr. Moussa. If he still can make mortgage payments of $5,000 per month, then he’s better off than most people in danger of losing their homes.

Excuse me, Mr. Moussa, but it’s time for you to move to  a smaller house, not to plead to the government for help.

I’m as sympathetic as anyone when it comes to helping homeowners, who have been left to fend for themselves as banks and insurance companies received repeated government bailouts. I’m with those who worry that while President Obama’s plan is a good start, it would be more effective if servicers had protection from liability for doing modifications and lenders had to write down loan balances, not just reduce interest rates.

But people who live in multi-million dollar mansions, and who still can afford to pay $5,000 a month mortgages, don’t need help from the government, in whatever form it comes. They might benefit from the “Get Out of Jail Free” idea I’ve been pushing, in which borrowers in default get their credit records clear after they give their house back to the bank.

I’d hand that to Moussa, but that’s all. What he needs most is a simple fix — one that doesn’t require him to qualify for a loan modification: he needs to give up his mansion. He can start over in a smaller dwelling. He can begin to understand, as we all have, that homes aren’t entitlements, especially McMansions in Dublin, Calif. Soon enough it will dawn on him, and others in his position, that loan modifications aren’t about government acting as your indulgent parent, fixing your every mistake and making everything better again.