Boosting house prices to fix economy

The Takeaway

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On the heels of the debt ceiling crisis, Congress has established a “super committee” to find ways to reduce America’s debt. The twelve-member committee began work on debt-reduction strategies this week, aiming to come up with a plan to reduce the deficit by $1.5 trillion by Thanksgiving of this year.

Christopher Mayer, Paul Milstein professor of real estate at Columbia Business School, says raising the cost of the average home is one strategy that would help the economy. Currently many people have homes that are worth less than what their mortgage is.

Mayer explains:

“We’ve proposed that Fannie Mae and Freddie Mac offer no-cost refinancing to all of the borrowers who have guaranteed mortgages from the federal government. The idea is not to subsidize the housing market, but to actually offer lower rates to households, given that business and banks have been managing to take advantage of the lower rates, to improve their profitability and balance sheets.

“We’d like to offer that same benefit to ordinary home owners who have been doing right, making their payments, but have not been able to take advantage of the low rates.”

Following through with this plan would cost the programs around $40 million, but would be affordable Mayer argues.

Fannie Mae and Freddie Mac are currently making a profit by charging new lenders a much higher rate. “That’s not the right role for the government in the situation. The role of the government is to help Americans,” said Mayer.

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