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June 22, 2008

Government loans for everyone?

Martin Feldstein has a proposal: Let the federal government take on a piece of people's mortgages to stop a self-reinforcing downward spiral on home values.

In an opinion article published in The Washington Post (and picked up elsewhere), the Harvard professor and president of the National Bureau of Economic Research writes:

Such a program might be structured this way: The federal government would offer all homeowners with mortgages the opportunity to replace one-fifth of their existing mortgage (up to some dollar limit) with a government loan. This loan would carry a substantially lower interest rate than the individual's mortgage (reflecting the government's cost of funds). It would be a full-recourse loan that would have to be repaid regardless of what happens to the borrower's mortgage or home. By law, it would take priority over all non-mortgage debt.

... Because this program would, in effect, swap government bonds for individual IOUs, it would not involve any increase in government spending or in the deficit. Because the loans would appeal primarily to those who now have positive equity in their homes, it would not reward people who made high-risk purchases and now have high negative equity.

Most plans to help homeowners -- those facing foreclosure or hurt by the slump in other ways -- have proved controversial. So -- weigh in:

 

Posted by Jamie Smith Hopkins at 4:57 PM | | Comments (1)
Categories: Polls
        

Comments

So this guy is proposing that the federal government should start the process of eliminating the ownership of private property? Brilliant. Let me just hand mine over now. I was getting really tired of being in control of my own life.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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