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On bubbles, borrowers

September 09, 2007

Regarding "For Borrowers in a Bad Spot, Situation May Only Get Worse," Sept. 2: When [financial expert] Dean Baker was asked, "What does a bursting housing bubble mean to the average homeowner?" he should have first noted that in the L.A. market there is no bubble.

Further, the situation in Los Angeles does not come close to what happened in the 1990s recession caused by the demise of the defense industry, followed by the Rodney King riots, fires, earthquakes and floods.

Buyers who submitted bogus loan applications, stretched themselves beyond their means or speculated on the market should not be bailed out at the expense of depositors, stockholders and taxpayers.

There are realistic ways to help innocent homeowners finding themselves upside down in their homes due to illness, layoffs or other unpredictable developments. Lenders will work with these borrowers. One solution, albeit with tax consequences, is a "short pay," which allows a home to be sold for less than the amount owed. Borrowers finding themselves in trouble should speak with their lenders to see what solutions are possible.

Susan Stone

Agoura Hills

The writer is a Realtor.

Baker's solution is for the federal government to unilaterally alter a bank's contract, take away their only default remedy and force them to rent the property to the homeowner instead of foreclosing. This would collapse the lending industry as we know it. Baker, stay in your think tank, but please restrict these wild comments to barroom chatter.

Peter Rosenthal


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