The trades last week came out against principal forgiveness, an idea floated by Federal Housing Finance Agency Director Edward DeMarco. Political observers, however, noted that he has long been opposed to debt forgiveness and may be simply responding to consistent pressure from the Democratic Party.

The government promoting debt forgiveness on mortgages just because homes may not be worth as much as they were previously is bad public policy. When you buy a home you take a risk, several actually, and one of those is that the value of your home will go down.

Certainly, there were some cases of abuse by lenders, brokers and appraisers that should be dealt with, but a debt forgiveness program will only encourage borrowers to strategically default. The strategic defaults lead to lower property values in the surrounding community and create a vicious circle that will prove even harder to break than this most recent economic malaise.