On Friday, the Neighborhood Assistance Corporation of America (NACA) started its 8 day “Save the Dream Event” in Washington DC. NACA is a Boston-based non-profit that focuses on foreclosure prevention. NACA has signed proprietary agreements with the major lenders to modify loans to “affordable payments” and holds large events in our country’s largest cities where borrowers can meet face to face with representatives of their mortgage lender. The goal of NACA is for the banks to lower the mortgage rate for borrowers who are suffering financially.

I read today about a woman who walked out of this event with an adjusted 3% fixed mortgage rate, saving her $300 – $400 a month. Not only is it amazing that she was able to get such a low rate but that her new mortgage is a “forever” loan. With these lower payments she can now afford to pay her mortgage and keep her home.

I have a lot of conflicting opinions about this.

Why does someone who is financially irresponsible get a fixed 3% mortgage rate when the homeowners who aren’t behind on their payments pay 6%? How unfair is that? How can they reward those people who failed to uphold their mortgage contract but offer no benefits for those that do? This seems to be a backwards way of thinking that I don’t support at all.

With that being said, let’s play out the scenario if lenders don’t make any mortgage modifications.

Foreclosures would skyrocket, flooding the already over saturated real estate market with new inventory. The basic laws of supply and demand would kick in and the value of your home, already well off the 2007 high, would plummet. Decreasing home values would in turn lead to more foreclosures as more and more people would walk away from mortgages that are valued higher than the actual price of the home. It’s a domino effect.

Another issue I see is how detrimental this will be to our banking system. Credit is hardly flowing as it is. Can you imagine if even more people stop paying their mortgages? The foreclosed homes would then be put on the banks balance sheet, they probably would be unable to be sold, and then banks would be even more unlikely to lend out any of the cash they are sitting on.

From a capitalist’s point of view, we should let all the foreclosures happen. People who were able to take advantage of the system and obtain mortgages they could not afford should lose their homes. I like this idea in theory. However, how much is the government then going to spend to make sure these people don’t go homeless? We all know how our government spends and they aren’t going to allow them to become destitute. I think we spend enough already on unemployment, welfare, and food stamps. I don’t want anymore of my tax dollars now spent on irresponsible home buyers.

Though I don’t condone the way NACA is handling these foreclosures, I am not against the idea of lowering mortgage rates. If the people who are getting foreclosed upon are being rewarded by the banks, so should we. This not only would keep the irresponsible homeowners in their homes, but think about how much money it would free up for the fiscally responsible? With excess capital, Americans would do what they do best… shop (whether you like it or not, over 70% of our economy is based in consumerism). That shopping would lead to economic growth and help us get out of this fiscal funk we find ourselves in.

Leading up to 2008 the banks in our country acted irresponsibly and were bailed out by the government through the TARP program. To this day they are able to borrow money from the government at 0-0.25%. Now, through NACA those people in the midst of foreclosure are getting assistance with a lower mortgage rate.

Where is my reward for being a responsible citizen that pays his mortgage on time?

I don’t need a handout from anyone but I hate that our system is such that it rewards the institutions and people who took on too much risk and spent too much money. Either we as a society need to stop with this practice or at least give the companies and citizens who are responsible Americans the same treatment.