More Burdensome to Pay Rent Than to Be a Mortgage Deadbeat

Under government mortgage bailout/modification programs, the mortgage payments of many delinquent borrowers were cut to 31 percent of income, even for borrowers with high incomes and big houses. That cut was based on the false assumption that anything over that percentage was unaffordable (and perhaps even predatory lending). But people often pay far more than that in rent and mortgage payments, especially in prosperous regions like Washington, D.C. So mortgage deadbeats are sometimes getting their payments cut well below what their responsible neighbors have to pay — not merely getting relief from a bad deal.

“One in five renters and one in seven homeowners in the Washington area spend more than half their income on housing, according to census figures,” notes a recent Washington Post storyMuch of the population in the counties surrounding Washington, D.C. spent more than 30 percent: “In Fairfax County, for example, more than half the renters with household incomes of $50,000 to $75,000 spent more than 30 percent of their income last year to keep a roof over their heads,” as did “more than six out of 10 homeowners in that income bracket in Prince George’s and Prince William counties,” and “more than half” in Washington, D.C. itself.

Senior government officials, who mostly purchased their homes long ago, long before the housing bubble (and thus often have mortgage payments that are just a tiny fraction of their income), seem oblivious to this reality.

Many borrowers aren’t making any payments at all. They’re just defaulting on their mortgages, knowing that it will take years for the bank to evict them for non-payment: 492 days is the average number of days since the typical borrower in foreclosure last made a mortgage payment.  As law professor Glenn Reynolds notes, this all “seems calculated to make people who are struggling to make their payments feel like suckers.”

These mortgage bailout programs are harming the economy, say some economists and real estate experts.

I understated things a bit when I noted earlier that some mortgage deadbeats had their mortgage payments cut to just 31 percent of income. Actually, it’s lower than that. That 31 percent figure includes not just mortgage payments but also real estate taxes.  So if a delinquent borrower has a mortgage that’s 20 percent of income, and property taxes that are another 15 percent of income (for a total of 35 percent of income), that borrower could have gotten a reduction in mortgage payments under the 31 percent test, despite having a modest mortgage.