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Published on: 12/4/2008
Last Visited: 12/7/2008
Before news of the Treasury plan leaked Wednesday, Dean Baker, co-director of the Center for Economic Policy Research, issued a report advocating that Fannie and Freddie stop buying mortgages in markets where house prices continue to be out of line with rents, in order to bring prices down another 20 to 30 percent.
That would put more homeowners underwater -- owing more on their mortgage than their home is worth -- and could lead to more foreclosures.
One solution suggested by Baker is to give homeowners who are foreclosed on the right to become long-term renters of their homes.
Baker argues that it's better to get price declines out of the way than to take measures that only prolong the inevitable.
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"At the new lower prices, home buyers would be less fearful that there would be a further decline in prices," Baker said.