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Mortgage Relief

For those of us who own houses and who are working hard to keep up with our mortgage payments, it has been difficult to hear about multi-billion dollar bailouts of Wall Street banks and financial institutions who have failed to make good on their commitments.

However, according to the New York Times article, Washington’s New Tack: Helping Homeowners, the Treasury Department is considering a plan that would subsidize 30-year mortgage rates so people would have the opportunity to get such mortgages at an interest rate of as little as 4.5%.

This strikes me as a very promising idea, and not only because my family and I would benefit from it. By essentially cutting the monthly cost of living for all current homeowners, the government will be increasing the amount of money middle income families can inject directly back into the economy.  Further, the plan would help the banks insofar as there presumably would be fewer loan defaults and the fees generated by the millions of people electing to refinance existing mortgages would be a windfall profit for them.

There is a qualified version of the proposal, however, that concerns me. The Real Estate lobby is apparently suggesting that these subsidized mortgages be limited to new home buyers. While this would be cheaper for the government insofar as fewer people would be able to take advantage of it, there is no reason to impose such a limitation if a more inclusive relief package would still make the offer available to new home buyers and thus stimulate the housing market. 

I think the proposed subsidized mortgage stimulus package, if enacted in an inclusive rather than exclusive way, would be a far more effective stimulus to the economy than writing individual rebate checks to all tax payers. To have a reduced monthly payment built into the lifetime of a 30-year mortgage would have a profound and lasting impact on the overall wealth of those who are working hard to afford their first home or who are, like us, working to pay off the remainder of a hefty mortgage.

Of course, this proposal only address those with the money to buy or own a house, so it would not address the struggles of millions of the working poor.  For them, relief in a variety of other forms will be needed: health coverage, unemployment benefits, etc. Such efforts, however, would not be undermined by extending mortgage relief to homeowners and home buyers; to the contrary, the overall effect of this sort of mortgage relief plan would be a more robust and strengthening economy.

If you agree, write your Congress members, the President and the President-Elect:

For those who live in Pennsylvania, you can write to our Senators here:


  • Though I’d like to see some relief for middle class Americans, I don’t think we ought to be subsidizing home ownership for older and richer homeowners anymore than we already are. Home prices have been artificially high for the last five years, and an adjustment is inevitable and necessary, especially since home ownership in many markets is impossible for working class families (it’s nearly impossible for professional families!) Targeting the program at first-time home buyers prevents this from being another handout like the Bush tax cuts that will disproportionately help the rich under the guise of helping ordinary folks.
    The money could be better spent on infrastructure improvement, education, low-income housing, health care reform, and social security, all of which are more likely to benefit the economy as a whole, while addressing the severe inequality that grew up over the last thirty years.

  • Thanks, Josh, for engaging in the debate on this. I agree that we don’t want this sort of program to become yet another way for the rich to benefit disproportionately from government intervention, be it tax cuts or bailouts for Wall Street.
    (And just for the record, I don’t consider myself yet an “older and richer” homeowner, although, I suppose I will have to admit to being both in relation to many!)
    In any case, there are specific benefits to the government for subsidizing existing homeowners with strong credit records given that there is a higher likelihood that the government would actually make money over on these mortgages over the long term.
    To be clear, I would not advocate this instead of the important infrastructure, education, health care reform, social security reforms and low-income housing support programs. It is difficult for me to think in terms of scarce resources with regard to all such programs when we just found $700 billion for Wall Street and however much more we are about to pay for the auto industry.
    If, however, we need to think in terms of scarce resources and limiting the size of the economic recovery programs, then there are still ways to subsidize mortgages of both existing homeowners and new home buyers by limiting the offer to one home and to those with an earned income of no more than, say $150,000 (as is done for Roth IRA’s), or $250,000 (the number Obama and others talk about in reference to tax cuts).
    It seems to me a broad spectrum of the economy needs to be stimulated, not just the highest income brackets nor only the lowest, but different sorts of stimuli need to be effected throughout the entire economy.
    Finally, let me reiterate my total agreement with your identification of the need to do whatever we can do to address the severe inequality that has grown over the past 30 years. That, it seems to me, should be a top priority.

  • Hey Chris! Just saw your response this morning. Does Moveable Type have an e-mail comment subscription you can install?
    First, my condolences: homeowners in State College right now have a very reasonable concern: there’s far too much luxury housing there, and State College has been riding high of the real estate pricing bubble, and it’s not selfish to be worried about your housing values. Here’s the only comfort I can offer: prices will certainly rebound, and whether you stay put for the rest or your career or sell and purchase elsewhere in the next three to five years, the depressed prices are national so it’ll end up about the same. I’ve seen some numbers that suggest the demarcation there is about at $350,000: if your home cost more than that, you’ll have trouble selling it, but if less, you should be fine.
    That said, from the perspective of progressive public policy, it seems that the important thing here is that housing prices are still a) out of reach for most families, and b) out of proportion to area incomes. That’s both unjust and unsustainable. Prices were driven by speculation, both from ‘flippers’ and from owner-occupiers who purchased larger, more expensive homes so as to maximize their exposure to appreciation, which we now know was a bubble. This last group is in the most trouble now: they saw real estate as ‘saving’ for retirement rather than what it really is: consumption. Unfortunately, people in this second group are now exposed to the other side of the market’s invisible hand, and so the question is: what do we owe them?
    I think your claim about stimulus, that “a broad spectrum of the economy needs to be stimulated, not just the highest income brackets nor only the lowest” is wrong. “Highest” and “lowest” are not two equal demographics that both need to be satisfied, nor does stimulus targeted at these two groups effect the economy equally. We owe a special duty to the least advantaged, especially when economic woes hit them the hardest and their ranks are likely to inflate as people slip out of the middle-class and into poverty during the recession. Unfortunately, the most effective stimulus will target neither: it’ll target the middle 60%, neither the poorest nor the richest. Ideally, we’ll distinguish stimulus from our obligations to the least advantaged without forgetting that special duty.
    So let’s talk numbers. Obviously, the poor are not buying real estate, so we needn’t set a floor for this benefit. As a ceiling, however, $150,000 seems high. $150,000 is roughly triple the average family income in the US which was $50,233.00 in 2007. I would propose a cutoff at $91,705 (which excludes the top 20% of households) or perhaps the old campaign number of $97,500, which is where payroll taxes phase out.
    By the way, if you’re interested in inequality, I’d recommend you look at Elizabeth Warren’s work. She’s a law professor who specializes in bankruptcy, but as a result she’s been looking at the causes of income inequality and done some mighty fine economic history. The upshot is that income inequality is largely due to increased costs for housing, health care, and pre-school/after-school child care.
    There’s a video and notes from a lecture of hers, here:

  • Josh:
    First off, I activated the subscribe to comments link on the main page of my site as well as the main page of the blog itself, where is was a bit hidden, so you should be able to subscribe now. I will take a look at Warren’s lecture and appreciate the link.
    Let me qualify the statement with which you, rightly, disagree. I took it for granted that the wealthy would receive stimuli because 1) the $700 billion TARP money seems to have been originally directed to the wealthy and 2) we have lived through a generation of supply-side tax policies that have benefited the wealthy. However, you are quite right to emphasize the ethical obligations we have to those making the least. My point was not to advocate an equal distribution of benefits across the economic spectrum, but to insist that some of the stimulus should be directed toward those who are not among the wealthy but who are working hard to pay mortgages and other debts in a responsible way.
    Your numbers sound good to me as they would target the population about which I was originally speaking. However, I do want to underscore your central point, which I hear to be that we need to distinguish between the various stimulus packages and our ongoing duty to develop and sustain ways of supporting the least advantaged among us.
    This, I hope, will be a central concern of the incoming Obama administration even if, at first, it will be obsessed with responding to the crisis we now face.

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