Tags: homeowners

Shiller: Homeowners Need New Type of Mortgage

Friday, 26 Sep 2008 02:03 PM

Yale University economist Robert Shiller is urging for the creation of a new type of mortgage that would automatically adjust principal and interest payments in times of economic stress.

Shiller, who accurately forecast stocks' plunge in 2000 and today's real estate crisis, wrote in The New York Times that "in this time of economic crisis, help for troubled homeowners often arrives late, when it arrives at all."

So, change is necessary, he says.

"Mortgages could be structured differently, so that adjustments in payments would be made as a matter of routine — systematically, automatically and continuously — starting even before distress is perceived by borrower or lender."

The adjustments could be made based on movements in national housing-cost indices and economic indicators, such as unemployment, Shiller says.

"Continuous workout mortgages would be privately offered," he writes.

"They would not be bailouts; the cost of workouts would be priced into the original mortgage rate."

With the risk of these mortgages clear from the beginning, they are less likely to be overvalued in the market, which is what caused the current financial crisis, Shiller points out.

A huge bonus of the plan: "By avoiding millions of individual family crises, we might also make institutional crises, like the collapse of Lehman Brothers and Bear Stearns, less likely," he writes.

Many on Capitol Hill say more must be done to help homeowners right now. Sen. Barbara Boxer (D-Calif.) told the San Francisco Chronicle that such aid is necessary to "get to the root of the housing crisis and work to keep people in their homes through refinancing."

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Yale University economist Robert Shiller is urging for the creation of a new type of mortgage that would automatically adjust principal and interest payments in times of economic stress.Shiller, who accurately forecast stocks' plunge in 2000 and today's real estate crisis,...
homeowners
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2008-03-26
 

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