Tuesday, November 11, 2008

If Only They'd Done This A Year Ago

Any plan to reduce mortgage interest rates/principals for people struggling pay them is somewhat problematic, as it does provide an incentive for people to get behind so they can get a better deal. Still, the reason to do it is that foreclosures are costly for both parties, they inflict large negative externalities on neighborhoods, and many homes are underwater so those who own the mortgages wouldn't be able to get more money back on foreclosure sales anyway. This way, maybe people get to stay in their homes and Freddie and Fannie have a chance to get their money without going through costly foreclosure proceedings/sales.