The Real Loss in the Financial ‘Crisis’ and An Opportunity for Fresh Perspectives

• Posted by Drew Tulchin
• On October 06, 2008


• Interests: Politics

Much has been said about the financial crisis and bail-out, so I don’t want to beleaguer the subject. I do want to call attention to some logical sounding items (at least to me) which, more often than not, have escaped mention.

Why aren’t the people losing their homes at the center of this discussion, reporting, or action? 1 million people in America losing their homes has a huge impact on the families themselves, not to mention on their assets and the future wealth transfer. I have not seen expressed or calculated, although I’d like to, the long-term impact of this from the point of view of subsequent future reduction in prosperity for America and our economic progress. If we kept people in homes, would that better serve our economy and speed the economic recovery? I believe it would much more so than the trajectory now projected from recent decisions made by the government in the bail-out and foreclosure activities in the private sector.

Is there no irony that houses are the mortgages that bought them are now ‘bad assets’. 1 and 2 years ago, they were not. Loans were being paid and real estate was viewed as an appreciating asset. The double whammy for home owners is painful: a person needs to re-finance, but can’t because their house isn’t worth enough at this time, although it was worth enough at one time to get the loan they originally got. The impact of this strikes me as cutting off noses to spite faces. Again, I have not seen any investigation or numbers, but would like to.

How can assets be written off 100%? Following the point above, these assets are not vapor. They are houses with people who want to live in them. They are not complete write-offs. There are relatively efficient means to recover the value. The best figures I’ve seen state that working with existing home-owners to keep them in their houses would average a 20% loss. Kicking people out of their homes results in 30-40% loss, particularly for foreclosure sales now.

I read about one great sounding program in Philadelphia that mandates mediation for people in foreclosure, requiring all interested parties to work together. In 80% of the cases, an agreement was reached in which the home-owner continued to pay their obligations and was able to stay in the home.

There must be better ways to address the human element, that also produces better economic results – or at least on par. Shouldn’t those be pursued in everyone’s best interests?

Drew Tulchin is Managing Partner of Social Enterprise Associates, a triple bottom line consulting company specializing in financial performance, social impact, and environmental sustainability. Information available at www.SocialEnterprise.NET. He can be emailed at drew@SocialEnterprise.NET and welcomes comments.

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