A Stimulus Idea Even I Can Support

I’ve been arguing for this idea for several months now. As a country, we’ve been so excited about spending billions to keep non-performing homeowners from defaulting on their mortgages, that we’ve created a set of incentives for people TO default on their mortgages.  Hey, that’s where the help is.

What if we gave incentives to people NOT to default on their loans?  What if there were principal reduction programs or rate-cut programs, but those were available only to those with a clean mortgage history (for at least, say, one year)?  How many people are paying credit card bills, but stiffing their mortgage company?  Think that would happen if your interest rate declined by .5% every year you were clean?  Or if you had $5000 of your principal balance forgiven for every 2 clean years?

And it seemed that nobody was listening, but now that is changing.  Obviously nobody is going to listen to me, but perhaps someone important can get the attention of the powers-that-be.  Last week Paul Jackson, the editor of HousingWire Magazine, called for a principal-forgiveness program for those that are NOT behind on their mortgages.  Here’s a salient paragraph:

Imagine if the current group of performing-yet-underwater borrowers — effectively more than 14 million strong, or roughly three times the annual estimate for all mortgage market activity — were actually able to sell or refinance their home. Talk about introducing legitimate demand into a market quite literally starved for it. It’d be instant stimulus. It’d be the right kind of stimulus. And we’d not be hearing about a housing depression any further, either, as homes started to really move.

This likely means it won’t happen, of course, but it is nice to know I’m not the only one that can see how good a thing it would be.

3 Responses to “A Stimulus Idea Even I Can Support”

  • Paul Valenzuela says:

    Think about lenders offering this without any government coercion as a way of competing against each other. They could fund it out of the reduction they could make in their reserve for non-performing loans.

  • chrisjones says:

    And that’s the only way I’d support it. It makes a huge amount of sense, especially because a large number of foreclosures are “strategic”, meaning that they are from people that CAN pay, and don’t because it makes no financial sense to do so.

    Not only would such a strategy make those far less likely, it would also reverse the increasing trend of delinquencies. I realize that securitization of the mortgage notes makes this complicated, but complicated and impossible are not the same thing.

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