Thursday, September 30, 2010

Cardoza Refinance Bill Deserves Serious Consideration

Dennis Cardoza has introduced a new mortgage modification bill, HR 6218

Cardoza's bill would allow refinancing at current fixed rates for all mortgages without any principal reduction.  His plan is very similar to that proposed by serious economists like Glenn Hubbard and Chris Mayer of Columbia University, and I heard Mark Zandi endorsed it too.  These aren't bleeding-heart liberals advocating bailout plans for the irresponsible, but serious economic thinkers who more typically advise Republicans.  They understand the magnitude of the problem and realize that we need to do something big.

As discussed in older posts, my preferred policy alternative for reducing foreclosures would combine principal reduction with a new shared appreciation mortgage in which homeowners would share any future gain on their homes with those who financed the principal reduction.  This has been promoted by a number of economists for the last two years, but principal reduction hasn't been able to garner a lot of serious political backing (although it would help if Valley reps. like Cardoza were pushing this too).

Although Cardoza's new bill isn't my first policy choice, it has two key characteristics that I really like.

1.  It's big and it's simple.  This is an enormous problem, and it should be clear now that is isn't going to be solved by a bunch of mini-programs.  That is what Washington has been doing for 2 years now.  It is also really simple to understand (which is an advantage over my preferred plan) which is key to getting enough participation to actually solve the problem.

2.  You do not have to be delinquent on your mortgage or unemployed to qualify for help.  Most of the mortgage relief plans in action now require borrowers to be 60 days delinquent or are restricted to the unemployed.  These create perverse incentives for people to default on their mortgage payments and not search as hard for work. 

As Representive Cardoza noted in his Huffington Post essay,
We are long past foreclosing on the subprime mortgages that helped create the meltdown. As the saying goes, we are now cutting into the bone: middle-income families who through no fault of their own are now losing their homes.
I am not quite ready to endorse Cardoza's bill, but I am warming up to it.  It definitely deserves serious consideration, and I hope it gets the debate and consideration it deserves. 

P.S. On a side note, I was quoted in a newspaper article about water and jobs saying, "This valley has incredible problems, but our leaders are completely consumed with this one issue" I will say that Dennis Cardoza has focused a lot more than his Valley colleagues on the critical foreclosure issue, and I am pleased he is listening to the advice of serious people.

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