Housing Bill Would Only Help 10%
While Democrats in Congress and the White House continue wrangling over a housing bailout bill, it’s worth keeping the following in mind:
Even if Bush had a sudden change of heart and chose to enthusiastically embrace the bill and sign it with a flourish, the measure would, at best, benefit only about 10 percent of homeowners underwater on their mortgages.
That estimate came from economist Martin Feldstein, who also argued in the Financial Times that the plan misses the point entirely:
What is missing is action to prevent positive-equity mortgages from becoming negative-equity mortgages. The federal government could achieve that by providing low-interest loans with full recourse that would allow any homeowner to pay down a significant fraction of his mortgage. Homeowners would be in effect giving up the potential to default on their mortgage loans in exchange for lower interest costs.
More homeowners are underwater on their mortgage than at any time since the Great Depression. So now there’s a major political battle being waged over something that won’t have all that much effect, anyway. Sort of like Saul Bellow’s famous comment about academia - that the politics are so vicious because the stakes are so low.
Feldstein mentioned the bailout measure in a longer piece noting his belief that the economy is in worse shape than statistics suggest. A nice contrast to Treasury Secretary Henry Paulson’s recent sunny declaration that the worst is over.