Plan A having apparently failed
Economist Luigi Zingales offers Plan B. [Link goes to PDF file.] The good stuff, as quoted by Tyler Cowen:
Congress should pass a law that makes a re-contracting option available to all homeowners living in a zip code where house prices dropped by more than 20% since the time they bought their property.
Thanks to two brilliant economists, Chip Case and Robert Shiller, we have reliable measures of house price changes at the zip code level. Thus, by using this real estate index, the re-contracting option will reduce the face value of the mortgage (and the corresponding interest payments) by the same percentage by which house prices have declined since the homeowner bought (or refinanced) his property.
… In exchange, however, the mortgage holder will receive some of the equity value of the house at the time it is sold. Until then, the homeowners will behave as if they own 100% of it. It is only at the time of sale that 50% of the difference between the selling price and the new value of the mortgage will be paid back to the mortgage holder.
There is precedent, says Zingales:
It seems a strange contract, but Stanford University successfully implemented a similar arrangement for its faculty: the university financed part of the house purchase in exchange for a fraction of the appreciation value at the time of exit.
Though Cobb warns:
Of course there will be no politicians to champion it because there’s no end in it for them. It doesn’t allow them to take any credit, spend any government money, raise or lower taxes.
I like it better already.
(Disclosure: The difference between what I paid for my house and what the County Assessor thinks it’s worth today, 59 months later, is a positive 29 percent.)
