The Real Deal Miami

Obama must get banks to reduce mortgage principals: editorial

August 22, 2011 02:30PM

Drastic changes are needed to stimulate a housing recovery according to a New York Times editorial, which urged President Barack Obama to push forward plans for principal reductions on home mortgages and easier refinancings.

The editorial argued that the overall economy won’t improve until the “tens of millions of Americans … crushed by the overhang of mortgage debt” get some relief. Because nationwide housing prices have declined 33 percent since the market’s peak, 14.6 million homeowners are underwater on their mortgages. Lowering interest rates, the argument goes, simply is not enough.

If Obama and government-run Fannie Mae and Freddie Mac urged banks to reduce principal amounts, mortgage payments would be reduced and equity would be restored. Though many oppose that philosophy in theory, as it seems to reward reckless borrowing, the Times argued that many borrowers are victims of a faulty process and a painful recession.

Other radical solutions, including making refinancings available more readily to underwater borrowers or effectively reducing mortgage loan interest rates to zero for five years should be considered, too, the Times said. [NYT]