Housing

Who Should Get Help With Their Mortgage?

For a year, the government has been trying — and largely failing — to help people who are behind on their mortgages avoid foreclosure. Today, the administration announced a big revamp of its program.

Perhaps most importantly, the new program will pay banks to reduce the amount of money owed by borrowers who owe more than their house is worth. So taxpayer dollars will ultimately be subsidizing people who owe as much as $729,750 on their homes.

There's a basic economic rationale for writing down principal on certain mortgages for people at high risk of defaulting: Foreclosures are very expensive for banks, so often they're better off if they can keep a borrower in their home by writing down the value of the mortgage. (Of course, you'd think that banks wouldn't need extra government money to act in their own economic self interest.)

More broadly, lowering the number of foreclosures may help stabilize the housing market and the broader economy.

But when the government starts paying banks and loan servicers to help people stay in their homes, things get pretty dicey pretty quickly. Who should get help? Anybody who owes more than their home is worth? What if they wouldn't be able to pay off the mortgage even if their principal is lowered? Or what if they could keep paying their mortgage without help?

Even the feds say they recognize that foreclosure will continue and are appropriate in some cases. Still, figuring out who should get help from taxpayers seems like an open question. So I want to know what you think.

Planet Money Question Of The Day: Who should get government help with their mortgage?

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