Leonhardt on the Administration's Housing Plan

NDN Chair Dr. Robert Shapiro today blogged on the Administration's plan for the housing crisis. Here's what David Leonhardt of the New York Times had to say about who the Administration's plan would help:

Certainly, some who took out a reasonable mortgage and later lost their job will be helped. But people who bought too much house — and banks that allowed people to do so, or even encouraged them to do so — will also benefit. As distasteful as this may be, it’s the only way to make a serious dent in foreclosures and, in the process, to help the financial system.

These same political calculations help explain the public emphasis that the White House is giving to the relatively modest steps it is taking to help underwater homeowners — those with a mortgage worth more than the value of their house — who can afford their monthly payments.

These homeowners are precisely the sort who seem as if they have done nothing wrong. They seem like innocent victims of the housing crash.

The new plan will help some of them refinance their mortgage at a lower rate. But only loans backed by Fannie Mae and Freddie Mac — not many of the subprime loans at the heart of the foreclosure problem — will be eligible. And the loan cannot exceed 105 percent of the current value of the property. Since prices have fallen almost 50 percent in some areas, like Phoenix, Las Vegas and parts of Florida, the cap will exclude many homeowners.

More here.

Leonhart and Shapiro both point out that the politics of the housing situation are incredibly difficult. The Administration's plan certainly attempts to deal with this, and Obama was very careful today about the language of who the plan will help. These multiple economic crises have tested the American ethic of personal responsibility many times. One would imagine that attempts to keep people in their homes will not be the last we hear of this conundrum.