Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

March 5, 2009


Dean Baker, Prospect - First, under the plan, how will their reduced mortgage payments compare with rents for comparable units? Will the people helped under this program still be paying more in housing costs (included other ownership related costs, like taxes, insurance, and maintenance) than they would to rent a comparable unit? In many bubble markets, homeowners are likely to still face higher housing costs even after their payments are lowered under the rules of this program.

Second, are these homeowners likely to end up with equity in their homes? The median period of homeownership in the United States is only 7 years. This means that a high percentage of the people who bought a home in 2003 or 2004 will likely plan to move in the next two or three years. If these people are already underwater in their mortgage, with house prices falling at a 20 percent annual rate, it is extremely unlikely that they will be in their home long enough to accumulate any equity.

If homeowners pay more every month than they would to rent a comparable until and still accumulate no equity, possibly facing a short sale when they move (which has the same impact on credit ratings as a foreclosure), then it is not clear how much they are being helped under the plan. With the Obama administration committing approximately $40 billion to this program, or $10,000 for each homeowner assisted under the plan, it is not clear that the benefits to homeowners are very high relative to the benefits to bankers. (The checks are paid to banks.)



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