A new working paper argues that the federal government should have temporarily lowered mortgage payments for underwater borrowers after the housing bubble burst, rather than reducing the principal owed.
In an interview with Realtor.com on the new research, University of Chicago assistant professor and co-author Dr. Pascal Noel says, "If the government spent the amount of money it used to subsidize principal reductions during the financial crisis and used it instead to reduce short-term mortgage payments, the spending response would have been 10 times greater ... increasing consumer spending by about $1.4 billion."
I was working in the Obama White House, helping design the government’s response to the foreclosure crisis, but we didn’t have the right research to make the most informed policy decisions. That motivated me to figure out what exactly would have been the most effective response to that and future crises.
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