Jack M. Guttentag The Mortgage Professor

I don't ordinarily like to publish long letters, but this one is worth the space because it captures the mood of a sizeable segment of the population:

"I'm upset by your recent article advising people having trouble with their mortgage on how to get it modified. In my view, they should be allowed to take their lumps...

"My first home was a single-wide trailer that cost $18,000, which was all we could afford at the time. We have upgraded three times since then as our family and our income have grown, but we never paid more than we knew we could afford...We have never missed a mortgage payment.

"I am tired of hearing the sad stories of people that overbought because they thought that house prices would rise forever and they would get rich. Their garages were full of boats and other toys that I don't have because I can't afford them...

"It drives me nuts that these people can now take advantage of programs that reduce their mortgage payments, and I'm paying for it with my tax dollars.

"The government should aim to promote good behavior, with programs that benefit homeowners who have played the game of finance the right way. Instead, government is helping the ones who were greedy, or stupid, or who lived beyond their means.

"I'm also tired of the media, including your articles, supporting these bad government policies by playing up how rough it is for these people whose lavish lifestyles have gone awry."

It is hard not to have some sympathy for this view. The measures government has taken to deal with the financial crisis are indeed unfair, rewarding many who don't deserve it while burdening the many innocents who must finance it. So why do we do it?

In large part, we do it because inaction would not punish the guilty alone. It would also destroy the livelihoods and disrupt the lives of millions of others who have done nothing to deserve having their lives disrupted.

Every foreclosure we can prevent now, even if the borrower we help is a greedy speculator or a profligate spendthrift, is one less house being thrown on the market, which ultimately will prevent the layoff of three people who would otherwise lose their jobs. Note: The number "three" is my guess; any econometricians among my readers are invited to correct it.

Furthermore, many consumers having mortgage troubles today were not greedy or extravagant; their only character deficiency was a lack of foresight, which afflicts most of us at one time or another. In particular, they didn't anticipate that house prices would plummet as they have; I didn't anticipate it either. The price drop has been an underlying or contributing cause of most mortgage problems.

It is interesting that the issue of deservedness does not arise in connection with aid to banks, auto companies, and other firms. Most would agree that the firms getting the aid are the least deserving, but there is a grudging acceptance that this is a necessary price to pay for maintaining the viability of the system. When it comes to individual borrowers, however, the systemic implications are ignored, perhaps because the fate of any one borrower will not affect the system.

Policies that attempt to limit assistance to deserving borrowers, however, do impact the system because large numbers of borrowers in trouble are denied help. This is certainly the case with the government's program of assistance for loan modifications, which excludes investors -- those who don't occupy their homes. The rationale for viewing investors as non-deserving is extremely weak -- most are small businesses and include many members of the armed forces. But even if investors were not deserving, foreclosing on the homes they own has the same negative impact on the system as foreclosing on the homes of the deserving.

There is another reason to help homeowners with mortgage problems, even when the problems are of their own making. When we replaced debtor prisons with bankruptcy laws, we became a forgiving society that offered people who had erred to have second chances and fresh starts. It is a long-standing tradition that has served the country well.

In my view, the valid rap against the current government programs to curb foreclosures is that they have been too timid to have the major impact we need. That timidity seems to reflect a misplaced concern by policymakers that government not appear to be assisting undeserving borrowers. As a result, many deserving people are going to lose their jobs.