patrick.net

They were running realtor commercials about the housing credit last night at 12:30 am. I guess they don't have calendars...

I, like others, am filled with outrage and fear at what the banks, the government, and – let’s face it – a lot of ordinary people have done, and continue to do, to the economy in their greed. One common thread I see in all of this is a lack of proper incentives for productive and responsible economic behavior. The latest folly we are being forced to watch is the taxpayer-backed bailout of banks combined with a series of half-assed distressed mortgage rescues, which allows extend-and-pretend accounting to artificially prop up the market while dooming us to a day of reckoning when the loans have to show up on the banks’ books (They do eventually, right? Right?) and it all comes crashing down. All this only increases the incentive for strategic default, and ultimately, the buck will stop, and park, in the taxpayers’ wallets.

I think we need to propose a set of proper incentives for housing rescue, focused on helping those who are still paying their mortgages, instead of throwing money at banks or at people who will eventually default anyway. The program I am thinking of is this: for ANY homeowner paying a mortgage, let’s have the government MATCH THEIR MONTHLY PAYMENTS up to a certain amount, say $500, for a set period (e.g., a year, maybe two). This helps the “responsible homeowner” (I have noted the opinion of many on how to not judge strategic defaulters, but I will stick to the moralistic terminology for now) for obvious reasons, banks (eventually and organically) because they are getting paid on their loans at least partially, and neighborhoods on the brink because the tipping point for Detroit-like desolation gets shifted down by that much. Because it is a limited program, NO ONE GETS OFF SCOT FREE, unlike the current situation, in which multiple parties (all of whom are culpable for the mess we are in) get off scot free – and even benefit – at the expense of the national economy in general. The mortgages that will default anyway, would still default under this program, and that is as it should be. However, because some mortgages that eventually default could be helped to PAY for a limited amount of time through this program, it buys time for banks, markets, and homeowners to unwind from their untenable positions and (relatively) safely find a decent equilibrium point, instead of getting avalanched by foreclosures as will be the case soon. I expect the results to trickle up in the economy (instead of trickle down, which has not happened, by the way).

Some additional considerations/benefits: it is an equal opportunity flat amount mortgage aid program – you pay, the government matches, up to the fixed nominal amount ($500, or whatever). The rich (or actually, those with rich mortgages) get aid, too, but it would cover a lower portion of their payments. So, it absolutely helps those paying lower mortgages more, but the rich cannot call it unfair, because the fixed amount of the aid is equal for all who are paying their mortgages. Many think the government should do nothing, and that view has merits, but in such times, the government can’t just do nothing, so something that doesn’t screw things up more is the next best thing. The cost: if the program were to be taken advantage of by 50 million homeowners (if we restrict the program to primary residence mortgages only), that is (50 million) X $500 = $25 billion per month. Over 24 months, that makes $600 billion, tops. The real cost of the bailouts so far is much greater, and has caused more harm then good. The actual number of households taking advantage of the program is probably going to be much less, and the period of the program is likely going to be set much lower, so an even lower cost estimate of $300 - 400 billion is realistic. It’s surely better than what’s going on now.

Anyway, just my 10 cents…

More like 75 cents.

Here's a plan to help suffering home debtors: R-E-N-T.

My 5 cents.

xenogear3 says

$8000 is only useful if you buy a $100k house, because you can use it as a “down payment”.
It is useless if you buy a $800k house.

Seems to me that 3.5% downpayment on $300,000.00 house is $9500.00 so this makes the downpayment on a 300 grand house 1500 bucks.

StillLooking says

xenogear3 says

$8000 is only useful if you buy a $100k house, because you can use it as a “down payment”.
It is useless if you buy a $800k house.

Seems to me that 3.5% downpayment on $300,000.00 house is $9500.00 so this makes the downpayment on a 300 grand house 1500 bucks.

Exactly. I know for a fact that this housing credit had a big effect on many people buying in the 300-400k range, keeping houses that SHOULD be closer to the 250k range, up in the upper 300k range. I see it all around me in the "working class" area of the East Bay.
It's going to take a while for people to realize that they are more and more going to have to bring more of their own money to the table, which makes it a little harder to pull the lever and sign up for a 300-400k++ house with a 50-100k a year household income..

http://marketplace.publicradio.org/display/web/2010/04/30/mm-homebuyers-tax-credit-impact-market/

looks like the impact is more than negligible...

MarkInSF says

From every report I’ve read, the tax credit has had negligible impact. Most people claiming the credit would have bought anyway. In the mid to high range it probably made no difference. The government just took money from me and gave it to somebody else that didn’t need it. That’s all.