Apr242012

Foreclosures are NOT hurting America’s children

As the crash in house prices continues the number of families displaced from their homes increases due to foreclosure, short sales, and strategic default. Since the foreclosures generally lead to an involuntary property eviction, many former loan owners are upset by the consequences for defaulting on their mortgage. Rather than accept the consequences for their mistakes, many who involuntarily vacated their houses portray themselves as victims deserving of special dispensation. Pandering politicians, mostly from the political left, have lobbied for increased loan modifications, foreclosure remediation, principal reduction, and other misguided policies to prevent those who defaulted on their mortgages from enduring the consequences for their actions.

The latest attempt to generate sympathy for loan owners comes from the Brookings Institute. Their recent paper titled, The Ongoing Impact of Foreclosures on Children, diverts us from the connection between mortgage default and the inevitable consequence of foreclosure with statistics ostensibly demonstrating the horrible impact foreclosures have on the lives of children.

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I know how to save their house. Foreclosure is the answer…

The Ongoing Impact of Foreclosures on Children

March 2012 — Julia B. Isaacs, Child and Family Policy Fellow, Economic Studies

Five years into the foreclosure crisis, many American families with children continue to lose their homes through foreclosure.

First, we do not have a foreclosure crisis. We have a debt crisis for which foreclosure is the cure.

Second, families find those houses lost in foreclosures. For each child displaced by an involuntary eviction due to foreclosure, another child’s family gets a new family home. Everyone overlooks the positive aspects of foreclosure. In fact, the new family is likely much happier and more stable because they are not as financially indebted as the people who moved out. Society greatly benefits from the housing bust.

An estimated 2.3 million children in single-family homes have already lost their homes to foreclosure, and even more – 3.0 million children – are at serious risk of losing their homes in the future. Another three million or so children may face eviction from rental properties that undergo foreclosure, suggesting that more than 8 million children are directly affected by the ongoing foreclosure crisis (see Figure 1).

Notice all the emotionally laden language about loss. Children “lose” their homes all the time. Parents take jobs and move the family across the country frequently. One of the strengths of the US economy historically has been the mobility of its workers (at least until about half of them got trapped underwater in their homes). Nobody is writing scholarly papers on the negative impact societal mobility has on children. The basic premise of this paper is deeply flawed.

As single-family and rental properties continue to enter foreclosure, children face not just the loss of their homes, but also the risk of losing friends and falling behind academically if they are forced to switch neighborhoods and schools.

And how do the children facing all this loss from foreclosure differ in any way from children whose parents took a new job in search of a better life? Do you see the silliness of this paper?

Children Affected by Foreclosures
Children are the often invisible victims of the foreclosure crisis.

Invisible victims? Utter bullshit.

Mortgage records do not tell how many children are in owner-occupied homes, and it is even harder to estimate the number of children in rental properties. Yet foreclosure affects not just the homeowner or landlord, but also the children living in the foreclosed properties.

The paper goes on to promote the previously failed policies of both the Bush and Obama administrations including loan modifications and principal reduction. The paper breaks no new ground and proposes no new ideas for solving this non-problem.

It’s not the children, it’s the parents

If children are negatively impacted by a foreclosure, it isn’t due to the foreclosure or even the eviction, its due to the parent’s reaction to their circumstances. Children are resilient, and if the parent’s deal with the change positively, the children will not be hurt. In the long run, since more families that go through foreclosure end up much more financially stable after they adjust to their new circumstances, the parents feel better, and the mood of the household improves. In that respect, a foreclosure brings closure to a bad situation and improves everyone’s lives, especially the children.