Shiller urges new approach to housing crisis

New York /
Aug.August 31, 2010 04:30 PM

Policy makers need to be more “inspirational” when designing solutions to the housing market crisis, according to Yale economist Robert Shiller, after whom the S&P’s Case-Shiller Home Price Index is named and which released its second quarter findings today. Shiller noted that it did not make sense to extend the homebuyer tax credit, and that the responses by the Bush and Obama administrations have amounted to “patches and bailouts,” he told the Wall Street Journal. Shiller believes that the solution lies in more “forward thinking” measures. One suggestion he offered was that mortgages should be indexed to inflation to allow for greater long-term certainty for borrowers. Another idea was that mortgage contracts in the future should include some kind of “preplanned workout,” detailing how a loan modification would proceed if the borrower fell behind on payments. Though the Obama administration has launched a debate on how to overhaul Fannie Mae and Freddie Mac, it’s not clear how much that debate will focus on ideas like those suggested by Shiller. [WSJ]

 

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