Friday, February 15, 2008

Is Clinton's Mortgage Plan A Bad, Bad idea?

second person I've read say this about Clinton's mortgage plan.

"This is a terrible, horrible, no good, very bad idea. Yes, multiple foreclosures can be bad for urban neighborhoods, and it would be nice if there were some way to prevent this. But the way to prevent it is not to have the government unilaterally rewrite the terms of mortgage contracts massively in the favor of the borrowers. The teaser rates these people got can be lower than the rate on a prime fixed mortgage. This is, of course, very nice for the people who bought more house than they can afford. It will not be so nice for anyone who wants to get a subprime mortgage in the future, since this move will probably destroy that market for at least a decade or so to come. It will, of course, be very bad for anyone who happens to be a mortgage lender--aka the people the rest of us want to borrow money from in order to buy houses. This move will leave them with a lot less money to loan out to anyone else, so hello, higher mortgage rates. Higher mortgage rates, for those following along at home, generally mean lower house prices, which means that the problem of negative equity will get worse.

In other words, Senator Clinton would like to destroy the mortgage market in order to save it."

via Megan Mcardle

I'm no expert, but Megan Mcardle's reasoning passes the smell test, for me.



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