Addressing the foreclosure crisis: A Hamilton Project policy discussion

With house prices down, many Americans now owe more on their mortgages than their homes are worth — a problem referred to as “negative equity.” In addition, interest rate resets on select subprime and traditional loans will result in even higher mortgage payments for many families already struggling to make ends meet. The results of these conditions are already apparent, with foreclosures in January 2008 up 57 percent from the year before. Without new and effective public policy, some experts project that 2 million families will lose their homes during the next two years, an outcome that would hurt communities while causing broader collateral damage for the economy, jobs, and wages.

Congress and the Bush administration are considering a broad array of proposals to address the current housing crisis, ranging in scope from minor adjustments to the mortgage-market to the creation of a federal agency to handle widespread refinancing of mortgages. However, the question of which policy provides the most effective remedy — while balancing the associated costs and risks — remains unanswered.

The Hamilton Project at Brookings hosted a discussion on proposed policy responses to the mortgage-foreclosure problem. Former U.S. Treasury Secretary Robert E. Rubin gave welcoming remarks followed by former U.S. Treasury Secretary Lawrence H. Summers, who provided an overview of the mortgage landscape and its broader economic implications. A roundtable discussion, including Michigan Law School Professor Michael S. Barr, Brookings Senior Fellow Douglas W. Elmendorf, JPMorgan Chase Senior Vice President Marguerite E. Sheehan, and NeighborWorks America CEO Kenneth D. Wade, evaluated several specific proposals for ameliorating the mortgage-foreclosure problem and proposed next steps for consideration.