Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Boston
Public Policy Brief
A proposal to help distressed homeowners: a government payment-sharing plan
Christopher L. Foote
Jeffrey C. Fuhrer
Eileen Mauskopf
Paul S. Willen
Abstract

This public policy brief presents a proposal, originally posted on the website of the Federal Reserve Bank of Boston in January of this year, designed to help homeowners who are unable to afford mortgage payments on their principal residence because they have suffered a significant income disruption and because the balance owed on their mortgage exceeds the value of their home. These homeowners represent a subset of the population of distressed homeowners, but according to our research they face an elevated risk of default and are unlikely to be helped by current foreclosure-reduction programs. The plan is a government payment-sharing arrangement that works with the homeowner's existing mortgage and provides a significant reduction in the homeowner's monthly mortgage payment. The plan does not involve principal reduction. Two options are presented; both are designed to help people with negative equity and a significant income disruption, such as job loss. In one version, the assistance comes in the form of a government loan, which must be repaid when the borrower returns to financial health. The second version features government grants that do not have to be repaid. In either case, the homeowner must provide evidence of negative equity in the home and of job loss or other significant income disruption. The costs of the plan are moderate, and the benefits should help not only the participating homeowners but also the housing industry, the financial markets, and the economy more broadly.


Download Full text
Download Full text
Cite this item
Christopher L. Foote & Jeffrey C. Fuhrer & Eileen Mauskopf & Paul S. Willen, "A proposal to help distressed homeowners: a government payment-sharing plan" , Federal Reserve Bank of Boston, Public Policy Brief, number 09-1, 2009.
More from this series
JEL Classification:
Subject headings:
Keywords: Mortgage loans ; Foreclosure
For corrections, contact Catherine Spozio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal