plan, financial institutions would be encouraged to increase capital reserves to serve as protection from losses.
How do Obama’s and McCain’s plans measure up? That may depend on whether you favor more government intervention or prefer to see Uncle Sam on the sidelines.
“McCain really doesn’t have a plan,” says Lance Freeman, an associate professor at Columbia University and noted housing expert. “He has a set of principles that would guide him. In general, he would take a hands-off approach.”
With this approach, Freeman says, those who make bad choices in the future would have less expectation that the federal government would bail them out. “In addition,” he points out, “the housing market is overvalued now. If the government does nothing, housing prices will probably decline to normal levels more quickly.”
On the downside, people would lose their homes as the housing market returns to normalcy. There is also an “enormous risk” that other people and other sectors of the economy will be harmed as well, during the revaluation process.
“Foreclosed properties harm entire neighborhoods, not just the people losing their homes,” Freeman says. “If large numbers of properties are foreclosed, the housing market will decline further and this could damage the economy even more.”
Freeman finds that Obama’s ideas go a long way toward reducing some of the inequities in the government’s treatment of homeowners. “In particular, extending the mortgage interest tax benefit to families that do not itemize will help low- and moderate-income homeowners,” he adds.