Columbia Business School economists R. Glenn Hubbard and Chris Mayer have put forth a plan – presented in the Wall Street Journal – aimed at shoring up the mortgage market and stabilizing house prices. They call on the government to push down residential mortgage rates to 5.25%, close to where mortgage rates would be in a normally functioning mortgage market and matching the lowest mortgage rate in the past 30 years.
According to the authors, falling housing values have caused the credit market to seize up, perpetuating further declines in house prices and contributing significantly to the current financial crisis. They propose lowering the mortgage rate to stop this decline, with certain terms.
Under the plan, while the government could end up assuming trillions of dollars of additional mortgages on its balance sheet, these would be backed by houses and the verified ability of millions of Americans to pay back the debt.
The full report is available at http://www4.gsb.columbia.edu/realestate/research/mortgagemarket
Source: Columbia Business School