Economist Robert Shiller, who presciently called the real estate crash, says he supports the Obama administration’s effort to provide mortgage relief to struggling homeowners.
But a more permanent solution is necessary, he argues in an interview with The Wall Street Journal.
That solution is mortgage insurance.
“I’m very glad that the administration is doing this, because I think it’s the core problem that hasn’t been addressed,” Shiller says.
“But the more fundamental problem which should be addressed is that we have a system that encourages homeowners to take leveraged, risky positions with all of their wealth in real estate in one city.”
The result: “We have more than 12 million homeowners who are underwater, and for a good share of them, that’s all they have,” Shiller points out.
The solution: “We should change our mortgage institution so that it helps people,” he says.
“We should have a mortgage that includes some kind of home equity insurance so that they don’t get wiped out.”
Shiller says he’s been told it’s unnecessary because homeowners already are in an optimal position.
“How can it be optimal if you have all of your life savings in this one leveraged investment?” he asks rhetorically.
Obama’s plan has drawn complaints from some who see it aiding scofflaws.
"The government isn't out there to help people who obey the law and follow the rules," David Newton, whose DJN Management LLC owns 232 rental apartments in the Atlanta area, tells The Wall Street Journal.
© 2017 Newsmax. All rights reserved.