The latest "Libertarian" column on Forbes.com by law professor Richard Epstein is about the Federal Housing Administration's plan to modify principal on mortgages:
The desire to have more Americans own their own homes led in the early 2000s to a flawed bipartisan government decision to subsidize home ownership. The government promoted low-interest mortgages to high-risk customers, who promptly paid inflated prices on homes to garner the government subsidy. Thus the subprime market was born. ... Once the bubble bursts, there is no elegant way to pick up the pieces when real estate values have plummeted by 50% or more. So just enforce the contracts as written and work for quick and final bank foreclosures.The hard-line libertarian view looks harsh in the short run, but in fact it offers the best chance for long-run recovery.
Professor Epstein notes that the FHA is still issuing new mortgages for more than 97% of a residence's market value. The ones we saw wanted 3.5% down.
