Comments on: In the ruins http://www.economicdisasterarea.com/index.php/misc/in-the-ruins/ Iceland Financial Crisis Wed, 07 Sep 2011 07:45:55 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Hot News » The Ruins http://www.economicdisasterarea.com/index.php/misc/in-the-ruins/comment-page-1/#comment-311 Hot News » The Ruins Sun, 22 Mar 2009 11:21:32 +0000 http://economicdisaster.wordpress.com/?p=1365#comment-311 [...] [...]

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]]> By: Vilhjalm A. http://www.economicdisasterarea.com/index.php/misc/in-the-ruins/comment-page-1/#comment-310 Vilhjalm A. Thu, 19 Mar 2009 18:18:48 +0000 http://economicdisaster.wordpress.com/?p=1365#comment-310 Earlier I posted a suggestion made in Ireland about a mortgage-relief plan, under which the underlying mortgage would be reduced by, say, 50%, with the 50% being assumed half by the government, half by the bank holding tthe mortgage. Here's a mortgage-relief plan from the US, the "Zingales Plan": "Zingales proposes that Congress pass a law to give a recontracting option to all homeowners living in a zip code where housing prices have dropped by more than 20 percent. If exercised, the Plan B option will write down the face value of the mortgage by the same percentage that the area housing price has dropped and, in return, the homeowner will give the mortgage holder 50 percent of any appreciation at time of sale. (Zingales points out that mortgage holders will do much better under this program than with foreclosures, where transaction costs eat up a hefty proportion of the market value.)" Basically it means the homeowner gets mortgage-relief in return for giving up future profits. And the percentages could be modified in various ways, eg 35% mortgage reduction for 70% of future profits to the government. So, if a plan like this were implemented in Iceland, it would mean that the government would take on more debt, on paper, but would also get more assets, on paper, so the plan would be a "wash" on the books. Also, you could argue that the state is not favoring one group of debtors over another, since the homeowner debtors are giving up price-appreciation profits - one of the main (potential) benefits of owning a house. The main disadvantage for the state is that it would get less revenue -- but is "revenue maximization" the main policy concern of the state? If that were the case, why not just increase income tax (or other taxes) as much as possible? A rational mortgage-relief plan, combined with the removal of indexing, would keep a large number of homeowners solvent, who would otherwise go bankrupt or leave the country. Probably the amount that the state would lose in mortgage payments would be partially offset by the amount of income tax from employed homeowners, which would otherwise be lost if the homeowner emigrates. (By the way, the non-recourse mortgages, are used in about 27 U.S. states, mostly in the west plus Texas and Florida. Not the entire country. It's no coincidence that the largest bubbles and subsequent defaults and foreclosures occurred in those states.) Earlier I posted a suggestion made in Ireland about a mortgage-relief plan, under which the underlying mortgage would be reduced by, say, 50%, with the 50% being assumed half by the government, half by the bank holding tthe mortgage.
Here’s a mortgage-relief plan from the US, the “Zingales Plan”:
“Zingales proposes that Congress pass a law to give a recontracting option to all homeowners living in a zip code where housing prices have dropped by more than 20 percent. If exercised, the Plan B option will write down the face value of the mortgage by the same percentage that the area housing price has dropped and, in return, the homeowner will give the mortgage holder 50 percent of any appreciation at time of sale. (Zingales points out that mortgage holders will do much better under this program than with foreclosures, where transaction costs eat up a hefty proportion of the market value.)”
Basically it means the homeowner gets mortgage-relief in return for giving up future profits. And the percentages could be modified in various ways, eg 35% mortgage reduction for 70% of future profits to the government.
So, if a plan like this were implemented in Iceland, it would mean that the government would take on more debt, on paper, but would also get more assets, on paper, so the plan would be a “wash” on the books. Also, you could argue that the state is not favoring one group of debtors over another, since the homeowner debtors are giving up price-appreciation profits – one of the main (potential) benefits of owning a house. The main disadvantage for the state is that it would get less revenue — but is “revenue maximization” the main policy concern of the state? If that were the case, why not just increase income tax (or other taxes) as much as possible?
A rational mortgage-relief plan, combined with the removal of indexing, would keep a large number of homeowners solvent, who would otherwise go bankrupt or leave the country. Probably the amount that the state would lose in mortgage payments would be partially offset by the amount of income tax from employed homeowners, which would otherwise be lost if the homeowner emigrates.
(By the way, the non-recourse mortgages, are used in about 27 U.S. states, mostly in the west plus Texas and Florida. Not the entire country. It’s no coincidence that the largest bubbles and subsequent defaults and foreclosures occurred in those states.)

]]> By: In the ruins « Economic Disaster Area http://www.economicdisasterarea.com/index.php/misc/in-the-ruins/comment-page-1/#comment-309 In the ruins « Economic Disaster Area Thu, 19 Mar 2009 13:34:57 +0000 http://economicdisaster.wordpress.com/?p=1365#comment-309 [...] In the ruins « Economic Disaster Area [...]

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