Tags: Summers | Mortgage | Housing | homes

Summers: Mortgage Write-Downs to Stabilize Housing

Tuesday, 25 Oct 2011 08:07 AM

The federal government should step in with “aggressive” and “rapid” plans to stem the rising tide of foreclosures or face another sharp decline in housing and, with it, a much weaker economy, argues Larry Summers, a Harvard professor and former economic adviser to President Obama.

In an Op-Ed that echoes the message of the White House in recent days, Summers makes the case for much broader attempts to keep homeowners in place, including write-downs of principal and loosening credit requirements at the federally backed lending agencies.

“The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending,” Summers wrote in The Washington Post. “This is true, above all, of housing policies.”
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Losses on owner-occupied housing have cut consumer wealth by $7 trillion over the past half-decade, severely hobbling the economy, Summers writes. The decline in value has turned into a major liability for U.S. banks.

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Larry Summers
(Getty Images photo)
First, credit restrictions must be loosened, Summers argues. Also, current homeowners should be able to take advantage of historically low rates. The obstacle is turning out to be the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac.

“Third, stabilizing the housing market will require doing something about the large and growing inventory of foreclosed properties,” Summer writes.

“Aggressive efforts by the GSEs to finance mass sales of foreclosed properties to those prepared to rent them could benefit both potential renters and the housing market.”

New York Fed President William Dudley joined the chorus of those warning that action is necessary on housing, in a speech at Fordham University in New York.

Housing is turning into a continuing problem, one which policymakers must take head on, Dudley said.

"Breaking this vicious cycle is one of the most pressing issues facing policy makers," Dudley said. He suggested that the Fed has already done a lot by keeping mortgage rates low. A continuance of that policy is possible, he said.

"Depending on how the world evolves, we potentially could move to do more in that direction," Dudley said.

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The federal government should step in with aggressive and rapid plans to stem the rising tide of foreclosures or face another sharp decline in housing and, with it, a much weaker economy, argues Larry Summers, a Harvard professor and former economic adviser to President...
Summers,Mortgage,Housing,homes
1910
2011-07-25
Tuesday, 25 Oct 2011 08:07 AM
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