I like it.

Ellen, please help me out. You seem to have a better understanding of these financial issues than I.

Let's pretend I have a $300k mortgage on a home that is now actually worth $200k (post-collapse of the housing bubble.)

Gov't now chooses to lower my interest payment on this debt and stretch it another 30 years, under an assumption that it will prevent me from walking away from the home.

The home was initially bought as an investment inasmuch as it was intended to increase in value and support my retirement. Now, it appears that even with the lower mortgage payments I will still owe more than its value at the time I eventually choose to cash out in retirement.

Insolvent now, or insolvent later seems to be the choice. (Or, at least, take your loss now, or take it later.) Where is the advantage to the consumer for him to simply rework the mortgage while still paying considerably more for this asset than what it is worth?

In the end, it seems that this proposal does not in fact have anything to do with helping out homeowners, specifically. If a person retains their job and all else remains the same, they should be able to afford the house payments they presently have. (In fact, probable devaluation of the $ may work in his favor, no?)

This proposal seems to be instead a torturous means by which to get $$ into circulation, nothing more. Would we not be better served to simply give every taxpayer x number of $$ to spend as they deem fit? Or perhaps find a more effective way to ensure these $$ get into circulation and stave off deflation and continuing recession?

I hope you can follow the line of questioning here, and I look forward to your response - even if it is to assure me that in terms of my abilities as an economist, I make a pretty good truck driver.

I'm confused - if the government takes over these houses/mortgages, will the government then pay the banks some amount of $ for the mortgages that they banks have?? What price would the government buy these homes from the banks for??

It seems like this idea will saddle the banks with even more losses than they have right now.

Values too, can be adjusted so they reflect reality instead of the artificially high prices of the bubble. The government can do this and did do this previously during the New Deal so it isn't as though it is an untested idea. If there is a difference between the refi and the articially inflated bubble price there are remedies for that too.

You are correct this pumps huge amounts of money into the economy and that's a good thing. It is also a very economical way of addressing the problems in the mortgage industry as opposed to borrowing billions to buy bad mortgages that will never return a penny. It relieves a great deal of economic pressure on millions of families. It also gives a break to the very people who will have to be paying back all the free money the government is giving out to the rich and powerful.

Seems only fair to me that if we're deficit financing the various business bailouts to the tune of nearly a trillion dollars, we can afford to loan ourselves the money to achieve this goal which will stop the bleeding that continues in the mortgage industry (10,000 forclosures per day and nothing on the horizon can be ssen that would slow that number) and stabilize the economy. All those bad mortgages and foreclosures is what keeps the financial institutions spooked and hanging on to the all the cash Uncle Sam is giving them.

The benefits of this approach are clear, extremely widespread and beneficial in every respect. As a practical matter there is no reason not to adopt this approach or something very like it and quickly before everything gets much, much worse as it will with continued inaction to help our citizens.

You're glomming on to a minor technicality here Ellen, but if you want to play that game (as you seem want to do) then I should have written "every homeowner who has a mortgage."

oleeb, you are right to remind me of the ARM's that are out there that will strongly affect the homebuyer's ability to pay. In this instance, it makes sense to rework the mortgage to a fixed, more affordable interest rate.

During the Depression, as I understand it, the problem was not that there was a home valuation bubble that burst. The mortgage assistance that was offered at that time was essentially designed to:

1.) maintain homeowner's control of the asset until such time they could afford to resume payment on their own.

2.) inject large amounts of capital into the economy.

With this program, we are asking many homeowners to continue making payments on an asset that will forever be valued at far less than the amount of the mortgage. My question (I don't know!) regards the dynamic here as it plays out. Does not the sensible homeowner too often find that it STILL makes sense to cut his losses and abandon this home/investment? I don't understand how this proposed mortgage adjustment has great impact on foreclosures.

It seems you are otherwise promoting something like continuance of the principal-free mortgage, wherein the home "owner" simply rents the home. This will perhaps work for so long as his payment doesn't surpass rent that might be paid elsewhere. There's no correlation here, however, and therefore no real basis upon which to build an effective policy.

Ultimately, it appears you are arguing to inject major $$ into the economy by means of helping the middle class pay their bills and thus protect themselves from foreclosure/bankruptcy until such time the economy recovers and they can again be secure in their jobs and income. To direct this solely and specifically at the mortgage payment seems to be unnecessarily limited in scope.

Finally, as a father whose son (34 years old; 13 years at his job) was just laid off without good prospect of finding any other family-supporting employment anytime soon, I am well aware of just how dire is the circumstance in which we find ourselves.

It's too bad the government didn't react in a timely fashion to the mortgage crisis but I wonder if the economic disaster hasn't moved in so many additional directions that your solution is too much for one problem and too little for others.

My mortgage will be paid off in just a few years but what I really need now is a car. Can we have a choice here? Can the government buy me a car instead? I don't want more long term debt.

There could be a holiday, as it were, on payments if necessary in certain cases but for most people the combination of the interest rates and inflated value of their homes when purchased has been a toxic mix. Refinancing pays off the old mortgage and new terms are set. There are several options on how to handle any difference between the new and old mortgages. First, the government could pay the difference which is a much cmaller sum than their current preffered approach of simply assuming the entire bad debt. Second, they could make the bank eat it as a consequence of their knowlingly making loans that could not be paid. Or third, a combination of these approaches is possible as well as other remedies for handling any discrepancy. Many people who are eeking by right now will not be able to afford their mortgage payments if anything goes wrong, one spouse loses their job or that sort of thing. By lowering their payments through refi's that pressure is lessened, but we also could save millions from actually going under. At 10,000 foreclosures daily with no end in sight that means millions of people are looking at dire straights in the next year if something doesn't change. For those who no longer have an income this would not be a panacea. The benefit of this approach is keeping millions in the homes they live in, stabilizing the market, and giving our people some basis for recovery that also makes money for the government since all the money is repaid with interest.