Roubini Likes the Mortgage Proposal

If you've been following my posts on the various bits of legislation to help homeowners, you know that I'm in general agreement with Dean Baker, an economist I highly respect^*, that most of the proposals are more about bailing out banks than homeowners, and that attempts to prop up home prices do little more than make housing less affordable.

However, I also highly respect Nouriel Roubini^†, and he likes the Frank-Dodd Proposal mortgage relief.

Seeing as how I'm not an economist, banker, or realtor, I thought that my readers (both of them) should see his take.

First, he admits that this would be nationalization of bad mortgages to a large degree, but he sees the lenders benefiting, after a 15+% haircut, because they get a guarantee, homeowners get to stay in their house, their neighbors don't deal with the effects of vacant lender owned housing, and it is far less expensive to the taxpayer than a full bailout.

I still think that real estate needs bankruptcy reform, and allowing mortgages on a primary residence to be adjusted by bankruptcy judges would be the best reform both in the long and the short term.

^*Not only did he call the housing bubble, he actually sold his home on that expectation in 2004, and he's now renting.
^†Perhaps the strident of the bear economists. The frightening thing is that to the degree he has erred, it has been because he has been too optimistic.