Proposal would lower mortgage rates to 4% for millions of homeowners
Aug 2011 18

Finally, something we can all agree on? :)

According to Scott Van Voorhis over at Boston.com, two Columbia Business School professors have a bold proposal for fixing the nation’s housing market problem and the US economy.

R. Glenn Hubbard, dean of the Columbia Business School, and Chris Mayer, a professor of finance and economics and the school’s senior vice dean, would like to refinance 30 million mortgages across the country down to a once unimaginable 4 percent.

Whoa.

You can only see their proposal as a theoretical one; there’s no way that this could come to pass. And, they’re not the first to come up with the idea. (Even I was talking about this exact thing, last weekend!)

There are great benefits to doing this. Mr. Van Voohris says the professors estimate it would free up $60 billion in cash that consumers would (hopefully) spend.

But, even if the majority put the difference in savings into savings, isn’t that a good thing?

The program would reward responsible owners, for once, so it would be mostly met with approval from the American public – and what politician could be against that??

Bond holders have always recognized that there is a risk that their loans will be called. That’s all that would happen here. The loans would be redeemed and replaced with loans at lower rates. Since no one’s done a complete analysis on this, it’s hard to know who this would affect and how.

(The US Government should be redeeming and reissuing all its long-term treasury debt anyway, btw.)

I don’t necessarily agree that housing in Greater Boston is “over-valued”; as a percentage of household income, taking out a $400k loan this year would cost you less than any time since at least 1990.

I agree; picking “losers” and “winners” shouldn’t be the job of the government. The free-market should decide.

People’s opinions on this idea probably vary based on whether or not they stand to gain.

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