Mirror of Justice

A blog dedicated to the development of Catholic legal theory.
Affiliated with the Program on Church, State & Society at Notre Dame Law School.

Monday, January 28, 2013

Our Ongoing Mortgage Debt Overhang, Its Drag on the Macroeconomy, and What to Do About It

On now to Pillar 2 of the Way Forward paper cited in my earlier post.  This, our readers might recall, involved measures designed to trim back the huge mortgage debt overhang that continues to operate as principal drag upon U.S. macroeconomic recovery -- and accordingly to prevent liquidation of our still growing public debt. 

By far the most effective way to get at this problem, as I suggested here this past June, is for municipalities to employ their eminent domain authority to purchase underwater loans out of trusts in which they are currently locked, refinance them, and thereby recoup value for homeowners and bondholders -- not to mention municipalities -- alike.  There's been a great deal of press about this plan since June.  My old mentor Robert Shiller of Yale, for one thing, endorsed the plan in his 23 June Sunday Times column.  But much more press, television, and radio coverage -- from all of the usual suspects (NYT, Time, Business Week, CNBC, Bloomberg, etc.) -- can be found here.  As it happens, a state official who read my earlier post on this plan here at MOJ back in June reached out to me and happily his state is now considering it.

For readers who want full financial and legal details of the plan, I'll now link to two articles on the same:  It Takes a Village, and Paying Paul and Robbing No One.

I would also be very keen to hear from our readers what they might think of another solution, cooked up by New York Fed colleagues and myself, for mortgagors who are not underwater but having trouble staying current on mortgage payments owing to slump-induced un- or underemployment.  The statute we've drafted on this, The Home Mortgage Bridge Loan Assistance Act, might well be passed in New York soon, and it would be lovely to see this happening nationally as well.  This supporting white paper says why.


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