Lowell Deeds

The lead editorial in today’s New York Times commends President Obama for trying to help the 13.6 million Americans who owe more on their mortgages than their houses are worth, but the paper also condemns his approach. Obama wants to reduce the interest rates on these loans and thereby reduce the monthly mortgage payment being made by these homeowners. The Times argues that while reducing the interest rate would reduce the monthly payment, it would still leave an enormous principal balance outstanding. With that dark cloud hovering above their residences, these homeowners have less of an incentive to stay with the home and might tend to just walk away rather than keep paying for something that’s never going to be paid off. I agree that dealing with the problem of “underwater” homeowners is critical, but I’m not sure which of these approaches (or if either) is the correct way to go.