Many Americans are having trouble paying their mortgages. Foreclosures rose 75 percent in 2007, and the rise is continuing. Some homeowners simply can't afford the homes they bought, regardless of the mortgage terms. Lenders should foreclose on those mortgages. In other cases, homeowners have the financial ability to pay what they owe, even on the onerous terms to which they agreed. Those homeowners should have to pay as agreed.
Perhaps a million homeowners fall somewhere in between. They can't pay what they agreed but can pay more than their lenders could net from foreclosure. Owners in this category can afford their homes but not their mortgages. Most want to stay and are willing to pay what their home is worth. It is in their lender's economic interest to let them. Foreclosure is expensive, and lenders end up bearing most of the costs. Foreclosed houses tend to sell for less than the market price, thus driving housing prices down further — and generating more foreclosures.