LevonP
02-17-2009, 04:12 PM
Boston Fed economists have a plan to help out homeowners who lose their jobs. Expect a lot of that in 2009.
The U.S. government is gearing up to spend $50.0 billion of its dwindling Troubled Asset Relief Program funds to resolve part of America's housing crisis by renegotiating mortgages that borrowers can't afford. Nice try, but that's not going to deal with 2009's housing issue: rising unemployment.
All the mortgage rejiggerings in the world won't do much to help homeowners whose major source of income disappears, and that is a growing threat to the American real estate market as the country's economy endures a second year of recession.
While Congress doesn't address this issue at all except in the long-term way of trying to stimulate economic growth, the Federal Reserve Bank of Boston has hatched a plan to deal with the risk of joblessness in the U.S. housing market.
Under the Boston Fed plan, taxpayers would cover between a quarter and a half of mortgages for homeowners who lose their jobs. The aid would last up to two years or until new employment was secured, whichever comes first. This ad hoc national unemployment insurance would cost $50.0 billion, assuming that 3.5 million homeowners got in on it.
The strengths in the Boston Fed plan lies in its simplicity. There are no modifications to the terms of the loans, so you don’t need to get mortgage services and lenders on board. There is no taxpayer liability down the road. Borrowers aren't forced to share any upside action, a murky concept that has been the death of other loan-modification programs, and while it’s only temporary help, it would have a significant impact on a borrower's ability to pay.
Other programs aimed at helping distressed borrowers permanently reduce monthly payments, as with the Federal Deposit Insurance Corp.’s affordability-focused IndyMac model which cuts payments by about a fourth on average. But when borrowers lose their jobs, whether they had an old-fashioned 30-year or a buy-now, pay later deal, they probably can’t come with most of their mortgage payments.
Earlier versions of the proposal had beneficiaries paying back the funds, but working out the details became too tricky.
The U.S. government is gearing up to spend $50.0 billion of its dwindling Troubled Asset Relief Program funds to resolve part of America's housing crisis by renegotiating mortgages that borrowers can't afford. Nice try, but that's not going to deal with 2009's housing issue: rising unemployment.
All the mortgage rejiggerings in the world won't do much to help homeowners whose major source of income disappears, and that is a growing threat to the American real estate market as the country's economy endures a second year of recession.
While Congress doesn't address this issue at all except in the long-term way of trying to stimulate economic growth, the Federal Reserve Bank of Boston has hatched a plan to deal with the risk of joblessness in the U.S. housing market.
Under the Boston Fed plan, taxpayers would cover between a quarter and a half of mortgages for homeowners who lose their jobs. The aid would last up to two years or until new employment was secured, whichever comes first. This ad hoc national unemployment insurance would cost $50.0 billion, assuming that 3.5 million homeowners got in on it.
The strengths in the Boston Fed plan lies in its simplicity. There are no modifications to the terms of the loans, so you don’t need to get mortgage services and lenders on board. There is no taxpayer liability down the road. Borrowers aren't forced to share any upside action, a murky concept that has been the death of other loan-modification programs, and while it’s only temporary help, it would have a significant impact on a borrower's ability to pay.
Other programs aimed at helping distressed borrowers permanently reduce monthly payments, as with the Federal Deposit Insurance Corp.’s affordability-focused IndyMac model which cuts payments by about a fourth on average. But when borrowers lose their jobs, whether they had an old-fashioned 30-year or a buy-now, pay later deal, they probably can’t come with most of their mortgage payments.
Earlier versions of the proposal had beneficiaries paying back the funds, but working out the details became too tricky.