Many of the articles written about the mortgage crisis and solutions offered are bailouts, particularly bailouts for the lenders and at the expense of the taxpayers. Why reward poor choices?
Martin Feldstein proposed a solution in this morning's Wall St Journal that makes sense to me:
Loan Substitution Program: (optional at homeowner's choice)
Feds would loan homeowner 20% of their current mortgage which would be used to reduce their mortgage principal by 20%.
15 yr payback, interest at 2-yr Treasury debt (now 1.6%) - deductible like mortgage interest
Homeowners could not increase the amount of their mortgage debt prior to paying this off
Loan would be secured by homeowner's future income (ie it wouldn't "go away" if foreclosed)
This could reduce the risk of continually downward spiraling home prices
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