Megan McArdle throws a wrench in the running gears of foreclosure assistance with her "lunatic proposal for the day." Specifically:
...why not make it easier to move homeowners out of homes they can't afford? Set up a streamlined foreclosure proceeding where a current or mildly delinquent homeowner can simply give the house to the bank and walk away. Do this with two legal provisos:
1. No tax on the forgiven loan
2. No black mark on the credit record. The bank marks the loan as fully satisfied.
The homeowner gets a fresh start, and the bank gets the house without the huge administrative costs that are normally associated with foreclosure. Everyone loses something, but no one loses a crippling amount, and there is no net transfer between two parties who are both in financial trouble.
It is sort of novel to target the admittedly burdensome administration costs rather than the losses themselves. Some courts are already adopting similar means by running "rocket dockets" and processing thousands of foreclosures a day- I can smell the lawsuits from over here though. One thing that is appealing about McArdle's proposal is that it doesn't attempt to perpetuate any fantasy that:
1. We can inflate asset prices at will with no longer-term consequences.
2. We can stave off foreclosure indefinitely.
Damning with faint praise [Asymmetrical Information]