When Gulfport resident Roger Rossbach saw that banks were sending people with delinquent mortgages big offers to trim their payments, he asked the same question as many homeowners: That's great, but what about me?
A retired Navy submarine cook, salty and frugal, the 60-year-old lives off $450 a week in benefits and bakes his own bread. Disabled with throat cancer, he said he still makes all monthly payments for his $50,000 pink-and-white home.
If he had fallen behind, lenders may have lowered his interest rate to keep him paying. Instead, after fighting for two years to refinance, he said he has nothing to show.
"I'm one of these people who drops right through the pee-hole, so to speak. I can't get assistance anywhere," Rossbach said. "That's the thing that trips my trigger. . . . They'd rather I just sit here and rot."
For distressed homeowners in Florida late on payments or risking default, the $8.4 billion in principal reduction, refinances and debt forgiveness paid out by the National Mortgage Settlement could be life-changing. Part of an agreement resolving a scandal over faulty foreclosures, the money will come from five of the country's biggest banks over the next three years.
Since March, the payouts have already erased $115 million from Florida loan principals, saving a lucky 1,000 borrowers an average of $114,000 per loan. And there's more to come, but only for homeowners who have stopped paying.
For everyone else, that money may seem like the opposite of relief: an unjust payout that leaves them behind. For Tampa Bay homeowners, nearly half of whom owe more than their home is worth, it could also encourage them to stop paying and reap the rewards.
"It's a real problem, because it sends the message that if you do the so-called responsible thing and continue to pay your mortgage, there will be no help for you," said University of Arizona law professor Brent T. White. "Anger about this kind of unfairness is often what drives them to default."
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That the banks' relief goes only to some troubled homeowners is calculation, not charity. Easing up on mortgage terms can encourage homeowners to keep paying or not walk away.
Principal write-downs — in effect, free money — are also a powerful incentive to stay afloat. The banks know that principal, however high, means nothing if no one pays.
So what about the other homeowners, who sent their checks and stuck it out as equity evaporated and prices continued to crash?
The answer isn't pretty, economists said, but makes financial sense. What reason, beside altruism, would a lender have to go easy on those assets? Incentive or no, those homeowners have proven themselves dutiful: They will keep paying anyway, which benefits the banks' bottom lines.
"It's really very costly in terms of people's sense of equity," University of Florida economics professor David Denslow said. "It causes severe strains to people's sense that the system is fair."
This problem of fairness, for right or wrong, can trace back to what economists call "moral hazard": The idea that we will take more risks if we won't suffer any adverse consequences.
It has been part of the housing market's lexicon since the bailout of banks termed too big to fail. Why wouldn't a bank chance a risky investment if it knew the government would keep it from failing?
Economists apply the term on the street level, too, for homeowners trapped below weighty mortgages they may never pay off. If they're sure of relief, the thinking goes, why would they pay at all?
Often what keeps homeowners paying off their loans, especially when their neighbors are eating free lunch, is emotion — love for a home, the guilt of foreclosure or anxiety over an uncertain future.
But those emotions can also drive homeowners the other way, toward what's known as "strategic default." In talking with hundreds of homeowners for a report, which he called, "Take This House and Shove It," White found that a feeling of homeowner injustice was just as key to financial number-crunching.
"If you want to bargain with your bank, you have to have some leverage. And the only leverage you have is if you're willing to default," White said. "A lot of people are saying, I just want to think how my bank thinks."
Economists like Edward Pinto, a resident fellow at the American Enterprise Institute and former executive vice president for Fannie Mae, said it's a bad idea to slash principals on delinquent borrowers.
"There's no bottom" to the assistance, Pinto said. "How far do you go?"
Instead, he said, government-sponsored mortgage giants should focus on perks for up-to-date borrowers, like lower interest rates.
But convincing banks to extend help even further, economists said, won't come easy. University of Central Florida professor Sean Snaith said banks would likely need a strong financial incentive or government mandate before offering more widespread relief.
"Without a policy that would somehow encourage them to do so," Snaith said, "it just doesn't make sense to self-inflict that kind of damage."
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Doubts over who is deserving of help will likely linger for years, fueled by stories of delinquent homeowners who gambled with foreclosure and came out ahead.
But rather than turning troubled homeowners to infighting, White said, needy borrowers should focus their frustrations at what caused the housing crisis.
"As long as financial institutions keep people raging at each other, the anger doesn't go where it should be," professor White said, "which is at the government institutions and the financial institutions responsible for the mess."
Contact Drew Harwell at (727) 893-8252 or firstname.lastname@example.org.