How home loan modification through the 60/40 plan can save the housing sector

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Many well-respected economists have suggested plans for mortgage restructuring built on the idea of share appreciation mortgages, which generate rather complex transactions with conflicting interests between the lender and the homeowner. The 60/40 Plan, however, combines several economic principles adapted to the nature of home loans and appears to provide all the benefits but fewer of the drawbacks of many of these programs, including current government programs such as the Home Affordable Refinance (HARP) and Home Affordable Modification (HAMP) programs. For example, HARP homeowners must service the entire principal balance and meet additional eligibility restrictions that are not warranted by economic considerations. In contrast, the 60/40 Plan provides for affordable monthly payments by restructuring the debt into two parts, has relatively minor eligibility requirements, and creates household incentives to maintain the property. Failure to address the current financing needs of the housing market may result in a decapitalization of the banking sector, lost potential house value for many homeowners through foreclosure, and an extended episode of low growth for the U.S. economy.

Original languageEnglish (US)
Pages (from-to)103-115
Number of pages13
JournalFederal Reserve Bank of St. Louis Review
Volume94
Issue number2
StatePublished - Mar 2012

Fingerprint

Loans
Mortgages
Economics
Incentives
Government
Foreclosure
Financing
Debt
Payment
US economy
Household
Banking sector
Housing market
Economists

ASJC Scopus subject areas

  • Business and International Management

Cite this

How home loan modification through the 60/40 plan can save the housing sector. / Santos, Manuel.

In: Federal Reserve Bank of St. Louis Review, Vol. 94, No. 2, 03.2012, p. 103-115.

Research output: Contribution to journalArticle

@article{7e45b56748ec486488e48797a0517d1c,
title = "How home loan modification through the 60/40 plan can save the housing sector",
abstract = "Many well-respected economists have suggested plans for mortgage restructuring built on the idea of share appreciation mortgages, which generate rather complex transactions with conflicting interests between the lender and the homeowner. The 60/40 Plan, however, combines several economic principles adapted to the nature of home loans and appears to provide all the benefits but fewer of the drawbacks of many of these programs, including current government programs such as the Home Affordable Refinance (HARP) and Home Affordable Modification (HAMP) programs. For example, HARP homeowners must service the entire principal balance and meet additional eligibility restrictions that are not warranted by economic considerations. In contrast, the 60/40 Plan provides for affordable monthly payments by restructuring the debt into two parts, has relatively minor eligibility requirements, and creates household incentives to maintain the property. Failure to address the current financing needs of the housing market may result in a decapitalization of the banking sector, lost potential house value for many homeowners through foreclosure, and an extended episode of low growth for the U.S. economy.",
author = "Manuel Santos",
year = "2012",
month = "3",
language = "English (US)",
volume = "94",
pages = "103--115",
journal = "Federal Reserve Bank of St. Louis Review",
issn = "0014-9187",
publisher = "Federal Reserve Bank of St.Louis",
number = "2",

}

TY - JOUR

T1 - How home loan modification through the 60/40 plan can save the housing sector

AU - Santos, Manuel

PY - 2012/3

Y1 - 2012/3

N2 - Many well-respected economists have suggested plans for mortgage restructuring built on the idea of share appreciation mortgages, which generate rather complex transactions with conflicting interests between the lender and the homeowner. The 60/40 Plan, however, combines several economic principles adapted to the nature of home loans and appears to provide all the benefits but fewer of the drawbacks of many of these programs, including current government programs such as the Home Affordable Refinance (HARP) and Home Affordable Modification (HAMP) programs. For example, HARP homeowners must service the entire principal balance and meet additional eligibility restrictions that are not warranted by economic considerations. In contrast, the 60/40 Plan provides for affordable monthly payments by restructuring the debt into two parts, has relatively minor eligibility requirements, and creates household incentives to maintain the property. Failure to address the current financing needs of the housing market may result in a decapitalization of the banking sector, lost potential house value for many homeowners through foreclosure, and an extended episode of low growth for the U.S. economy.

AB - Many well-respected economists have suggested plans for mortgage restructuring built on the idea of share appreciation mortgages, which generate rather complex transactions with conflicting interests between the lender and the homeowner. The 60/40 Plan, however, combines several economic principles adapted to the nature of home loans and appears to provide all the benefits but fewer of the drawbacks of many of these programs, including current government programs such as the Home Affordable Refinance (HARP) and Home Affordable Modification (HAMP) programs. For example, HARP homeowners must service the entire principal balance and meet additional eligibility restrictions that are not warranted by economic considerations. In contrast, the 60/40 Plan provides for affordable monthly payments by restructuring the debt into two parts, has relatively minor eligibility requirements, and creates household incentives to maintain the property. Failure to address the current financing needs of the housing market may result in a decapitalization of the banking sector, lost potential house value for many homeowners through foreclosure, and an extended episode of low growth for the U.S. economy.

UR - http://www.scopus.com/inward/record.url?scp=84857866606&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84857866606&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:84857866606

VL - 94

SP - 103

EP - 115

JO - Federal Reserve Bank of St. Louis Review

JF - Federal Reserve Bank of St. Louis Review

SN - 0014-9187

IS - 2

ER -