Friday, January 27, 2012

Forbearance, Forgiveness, Immunity and Complexity cont.

While it's only tangentially related to the bank settlement deal I previously discussed, I think former White House economics adviser Jared Bernstein unpacks some interesting details on the complexity of the housing market mess that bear highlighting. Bernstein is mostly talking about the pros and cons of mortgage forbearance versus forgiveness, with a specific point that the Federal Housing Finance Agency conservator of Freddie Mac and Fannie Mae, who in turn are 80% owned by the Fed gov't) could quickly reduce the principal on millions of home loans they own or insure, without going through Congress." The FHFA can do this either through a forbearance plan with underwater homeowners (which would restructure the terms of their loans) or forgiveness (which would actually reduce the principle of the loan itself.

"The path ahead," Bernstein explains "toward forgiveness, not forbearance—should be clear." The reasons why is the main thrust of what he's writing about here. Even if you just skim it (I certainly glazed over a few paragraphs myself) you defiantly start to see the complexities of the housing market problem.

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