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A proposal to help distressed homeowners: a government payment-sharing plan

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Author Info

  • Chris Foote
  • Jeff Fuhrer
  • Eileen Mauskopf
  • Paul Willen

Abstract

This public policy brief presents a proposal, originally posted on the website of the Federal Reserve Bank of Boston in January of this year, designed to help homeowners who are unable to afford mortgage payments on their principal residence because they have suffered a significant income disruption and because the balance owed on their mortgage exceeds the value of their home. These homeowners represent a subset of the population of distressed homeowners, but according to our research they face an elevated risk of default and are unlikely to be helped by current foreclosure-reduction programs. The plan is a government payment-sharing arrangement that works with the homeowner's existing mortgage and provides a significant reduction in the homeowner's monthly mortgage payment. The plan does not involve principal reduction. Two options are presented; both are designed to help people with negative equity and a significant income disruption, such as job loss. In one version, the assistance comes in the form of a government loan, which must be repaid when the borrower returns to financial health. The second version features government grants that do not have to be repaid. In either case, the homeowner must provide evidence of negative equity in the home and of job loss or other significant income disruption. The costs of the plan are moderate, and the benefits should help not only the participating homeowners but also the housing industry, the financial markets, and the economy more broadly.

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File URL: http://www.bostonfed.org/economic/ppb/2009/ppb091.htm
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File URL: http://www.bostonfed.org/economic/ppb/2009/ppb091.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal Public Policy Brief.

Volume (Year): (2009)
Issue (Month): ()
Pages:

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Handle: RePEc:fip:fedbpb:y:2009:n:09-1

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Related research

Keywords: Mortgage loans ; Foreclosure;

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Cited by:
  1. Thorvardur Tjörvi Ólafsson & Karen Á. Vignisdóttir, 2012. "Households’ position in the financial crisis in Iceland. Analysis based on a nationwide household-level database," Economics wp59, Department of Economics, Central bank of Iceland.
  2. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2010. "Market-Based Loss Mitigation Practices for Troubled Mortgages Following the Financial Crisis," Working Paper Series 2010-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  3. Bradbury, Katharine L. & Burke, Mary A. & Triest, Robert K., 2013. "The effect of foreclosure on Boston Public School student academic performance," Working Papers 13-12, Federal Reserve Bank of Boston.
  4. Das, Sanjiv R. & Meadows, Ray, 2013. "Strategic loan modification: An options-based response to strategic default," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 636-647.
  5. John V. Duca & John Muellbauer & Anthony Murphy, 2010. "Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future," SERC Discussion Papers 0049, Spatial Economics Research Centre, LSE.

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