Poking holes in the Dodd-Frank mortgage rescue plan

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Congress appears to be heading toward approval of some version of the Dodd-Frank plan to write down, refinance and then guarantee as many as 1 million mortgages. What’s not to like? Plenty, according to this report from CNN Money, which highlights several arguments against the write-down rescue plan:

-- Robert Shiller, the Yale economist who has long argued there was a bubble in home prices, said the plan will do little to stop the slide in housing prices -- he argues prices have further to fall to reach historical norms.

-- If Shiller is right, and prices continue to fall, ‘the FHA would be left with a large portfolio of loans backed by houses worth less than the mortgage... the government (and hence taxpayers) would be on the hook for billions of dollars in bad loans.’

-- It might not be in the best economic interests of homeowners struggling to meet mortgage payments. MIT professor William Wheaton ‘argues many of the homeowners now facing foreclosure could be better off renting the same home at current market prices, rather than trying to refinance the mortgage.... For this reason, he thinks the government would be better off giving tax assistance to companies willing to buy foreclosed properties and then rent them to the current occupants.’

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