There is a lot of discussion about reducing principal balances on underwater mortgages. The head of the FHFA recently estimated that even a small reduction on Fan and Fred loans could cast $100 Billion, which would have to be funded by taxpayers. That is not a very palatable option when over $150 billion has already been sunk into Fan & Fred.
Bailouts of homeowners (e.g, reducing their principal balance) are unpopular for other reasons. First, one third of Americans rent. Why should they help bailout homeowners that are underwater? Second, 30+% of homeowners don't have a mortgage. Why should they help bailout heavily indebted homeowners, when many over-extended unwisely? Third, The overwhleming majority (probably 85%) of homeowners with a mortgage are current in payments. Why should they help bailout other homeowners?
There would have to be a load of political air cover for these sorts of actions. Opposition to homeowner bailouts was, after all, one of the early motivating forces in the Tea Party movement, along with TARP. And, we already have a huge deficit and debt to manage: adding to it is problematic even in a non-election year.
Maybe people should look at their houses as homes, not assets, and just stay put until we settle into normalcy.
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