Now, maybe I’m just not smart enough to understand this, and I’m happy to be corrected, but why in god’s name is Hank Paulson proposing a plan that would finance new mortgages at 4.5 percent?
Treasury officials told the [National Association of] Realtors that the plan could be a more effective way to help homeowners than focusing efforts solely on borrowers who are struggling to meet their monthly payments, the sources said. Democratic lawmakers have been advocating a proposal to modify the mortgages of distressed homeowners.
I’m assuming the logic is that by artificially reinvigorating the housing market (sound familiar?), home values rise, and homeowners who can’t afford their mortgages will no longer be “underwater” (meaning their homes will no longer be worth less than their mortgages), these folks will now sell their homes, and in doing so, will stave off further foreclosures. This makes a certain degree of sense, but how long would something like this take? What guarantees their homes will be bought? Is there a more circuitous method to be taken? If the point is to help distressed homeowners, wouldn’t it be a lot faster to follow Sheila Bair’s lead and just restructure troubled mortgages?
Of course, if the point is to stimulate one of the industries most culpable for this mess with a possible side effect of helping distressed homeowners, then this sounds bitchin’. Pitching it as an aid to homeowners though is like suggesting that the best way to save a drowning person is by draining the pool.
I know there are a few people involved in this industry that read this blog, so feel free to leave your thoughts in comments.