Underwater Mortgages and You

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Homeowners who are underwater on their mortgages are a drain on the economy because high mortgage payments reduce their demand for other goods and services. So how do we fix this? Mike Konczal reviews a couple of proposals to help out distressed homeowners and doesn’t like them:

These two plans sound like really complicated programs, large-enough in scale to be inefficient. Which is a waste, since we already have this great system for writing down and managing burdensome debt, and it’s this marvelous thing called our bankruptcy laws. Sadly there’s a defect in it that prevents bankruptcy courts from writing down single-family principle residence mortgage….[But] we could easily pass a streamlined, modified version of bankruptcy just for this crisis.

I think bankruptcy “cramdown” is a good idea, but there’s a problem with it: lots of homeowners who are stuck with mortgages they can’t afford — mortgages that, in aggregate, are a massive drag on the economy — nonetheless aren’t in such desperate straits that they can declare bankruptcy. In addition, there are others who could, but don’t want to. Bankruptcy is a big deal, after all.

So I’m a little more sympathetic toward those broader plans than Mike is, because they might help a broader swath of homeowners and get the economy moving more quickly. Unfortunately, as much as people hate bailing out banks, they hate bailing out their profligate neighbors even more. I think we can safely expect nothing to happen on this front, and that means the economy will continue to underperform and unemployment will stay high. Thanks, tea partiers!

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily bluster—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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