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Jul-25-2012 17:05printcomments

Merkley Unveils Bold Plan to Jump-Start Housing Markets

Senator Proposes 4% Refinancing Option for all Underwater Homeowners to Spur Economy.

Foreclosure home
Merkley's plan could help struggling homeowners.

(WASHINGTON DC) - Oregon’s Senator Jeff Merkley today offered a new plan to tackle one of the most persistent challenges to the sputtering economy: the massive number of Americans who owe more on their mortgages than their homes are now worth.  In a white paper containing the proposal, called “The 4% Mortgage: Rebuilding American Homeownership,” Merkley laid out a plan to allow underwater homeowners who are current on their mortgages to refinance to a lower interest rate. Merkley announced the plan on YouTube, Twitter and Facebook earlier this morning.

“Four years ago, the U.S. government acted quickly and boldly to rescue major financial institutions. However, we have not done not nearly enough for American families who are struggling with the downturn in the housing market,” said Merkley. “There are millions of Americans trapped in high-interest mortgages, and that's not just bad for them, it's bad for neighborhoods hit by foreclosures and it's a huge anchor on our economy.  A bold solution to help these families refinance is the fastest way to get our economy back on track.”

Merkley's plan, which would not require taxpayer dollars but does anticipate the federal government selling bonds to investors to raise funds, is projected to turn a profit over its lifetime, according to models and stress-tests of the underlying assumptions. The Senator, who serves on the Senate Banking Committee and was once the executive director of Habitat for Humanity in Portland, spent over six months developing the proposal and consulting with experts.

“America’s economic recovery is being held back by $700 billion in negative equity in the housing market,” said Dr. Joseph Stiglitz, Professor of Economics, Columbia University. “Millions of homeowners are unable to refinance, because they are underwater on their mortgage and their loan does not carry a government guarantee. Senator Merkley’s broad refinance proposal would allow these families to refinance into loans with a lower interest rate, freeing consumer resources to be spent on other important needs, or allowing the homeowner to rebuild equity more quickly.  If adopted, this proposal would help to stabilize the housing market, create new jobs, and boost our overall economy.”

“Senator Merkley’s plan is a creative and bold effort to address the serious economic threat posed by millions of underwater homeowners,” said Mark Zandi, Chief Economist, Moody's Analytics. “With so many underwater, odds remain uncomfortably high that the housing market and broader economy will continue to struggle. Previous attempts to solve this problem have fallen well short. Senator Merkley’s plan is an ambitious one, and should be carefully considered.”

Over one-fifth of American homeowners are currently underwater. They are therefore unable to take advantage of historically low mortgage rates and are at much greater risk of default and foreclosure. Merkley's plan would create a new, temporary government-backed trust to purchase mortgages issued by private lenders that meet the program's criteria. After refinancing, average underwater homeowners would, depending on the option they chose, see their monthly payment drop sharply or dramatically cut the amount of time before they begin building positive equity in their home.

In the plan, Merkley calls for the plan to be piloted immediately, a step that could be taken without new legislation from Congress. The proposal envisions a role for the Federal Reserve, Federal Housing Administration, or other agency to create the new trust.

The National Association of REALTORS® announced its support for Merkley’s efforts to help repair the dream of homeownership in America: “Senator Merkley’s proposal would develop a trust to purchase mortgages from loan originators and investors to offer refinance tools that either help homeowners rebuild equity quicker, lower their monthly payments, or ease the payment burden on severely underwater mortgages,” said 2012 NAR President Moe Veissi. “That is exactly the innovative approach that our nation must take to ensure a sustained housing recovery.” 

The full plan can be found here and the YouTube announcement can be found here.

Source: News release from Senator Merkley's office

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Hio January 9, 2013 8:54 pm (Pacific time)

ola senor, your argument is bogus. Let's say I earn $300,000, and I dedcie to go ahead and spend 25% of my income on food. Does that mean that I should not pay a higher percentage of taxes than someone who earns only $30,000? Of course not. The question of how much one spends on food or housing or anything is entirely independent of the question of how much taxes they should pay.At the bottom of it, your notion that he can better afford to go without is based on the law of diminishing marginal utility. Hayek torpedoed this argument for graduated income taxes many decades ago. The truth is that the utility of any consumed item is altogether subjective, so that there is no objective way to arbitrate between what my first dollar means to me compared with what your 100th dollar means to you. It is, therefore, an unsound basis for uniform laws that forcibly confiscating property.As far as the benefit from society argument, that is easily disposed of as well. If people were obliged to society in proportion to how much they'd benefited from it, then Socrates' argument (in the Crito) for the justness of executing innocents would hold.I cannot speak for Ron, but it's my guess that when Ron asked Why should they guy who makes 300,000 have to give away a higher percentage of his income than the guy who makes 30,000? He wasn't just aimlessly asking for random reasons. On the contrary, I suspect that he was asking for good reasons, of which you've provided none.In the end, the real reason the Congress uses a system that taxes the rich at a higher rate (and thereby violates the principle of equal protection under the law) is because they can.Regarding the mortgage deduction, I have mixed feelings. On the one hand, I despise the lie advanced by liberals and conservatives alike that owning a home magically makes people better citizens. Thus, I would like to see government policy that is based on that lie abolished. One the other hand, I'm reluctant to begrudge anyone a little bit of savings on their taxes, especially when it disproportionately benefits the rich.

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