Daily Real Estate News  |  October 3, 2008  |   Profs Offer Up Their Own Housing Rescue Bill
Push down mortgages to 5.25 percent then give home owners the opportunity to refinance the mortgage on their primary residences through Fannie Mae and Freddie Mac, suggests Columbia University Business School economists R. Glenn Hubbard and Chris Mayer.

Other points in the plan espoused by Hubbard and Mayer are:

• Home owners would have to give up the right to refinance their mortgage if rates fall, although they would have the option of paying off their mortgage if they sell their home.

• For borrowers with lower credit scores, the mortgage rate would be greater than 5.25 percent but likely less than their current rate.

• Mortgages on homes that are worth less than the total amount of the loan (homes with "negative equity") could be refinanced into 30-year fixed-rate loans to be held by a new agency modeled after the 1930s-era Home Owners' Loan Corp. The new agency would split the losses on refinancing a mortgage with servicers and owners and take an equity position in return for the write-down (which could be capped to limit liability), allowing taxpayers to profit once the market recovers.

Hubbard and Mayer say they believe their plan will:

• Raise the value of homes by putting a floor under prices.
• Recapitalize the banking industry by moving mortgages off bank balance sheet to the government’s books.
• Restore confidence of new home buyers and benefit the existing housing industry.

Source: Paul Milstein Center, Columbia Business School, R. Glenn Hubbard and Chris Mayer (10/02/08)