Tuesday, November 25, 2008

Just when you thought it couldn't get any worse

Using jargon-free, simple prose, Susan Woodward and Bob Hall explain why the populist impulse to help homeowners is almost exactly wrong:
The main support that the government has offered so far is to guarantee modified mortgages, so that the government, not the lender, bears the cost of a default after modification. Subsidizing defaults will do some additional damage, as a good policy would discourage defaults, not subsidize them. Another questionable policy is a moratorium on foreclosures. Houses deteriorate rapidly when occupied by people who think they are going to be evicted. Policies that do not encourage true home ownership, where occupants have full incentives to take care of the houses they live in, risk additional deterioration to the housing stock. Nonetheless, several states have adopted moratoriums and there is talk of a long moratorium imposed by the federal government.

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