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mortgage mess

If You Owe More on Your House Than It’s Worth (and Live in Ireland), You May Be in Luck

October 15, 2010 shot of a Las Vegas house under foreclosure.

Seems the Irish government is seriously considering a proposal by economist Morgan Kelly to spend up to $8.5 billion writing off the mortgage debt of people facing what's called "negative equity" — an increasingly common situation where the value of peoples' homes has crashed to less than what they owe on their mortgage(s). The plan would cover nearly 90,000 mortgages, or some 11 percent of the country's residential mortgage market, and is meant as an economic stimulus of sorts. Naturally, the question of where this money will come from remains, since Ireland itself was recently bailed out by the IMF and European Union.

This seems like an idea the U.S. should be considering, no? What with all the talk about rampant foreclosures and housing prices down one third since summer of 2006. Well, turns out the Obama Administration has already tried something very similar. In late 2009, concurrent with the bank bailout, Obama announced $75 billion to help up to 9 million mortgage holders in financial straits. At that time, according to a handy state-by-state Wall Street Journal map of "negative equity" households, almost 23 percent of mortgage holders, or some 10 million households, were in this situation. (In Nevada and Arizona, where housing prices saw their most dramatic declines, this number was as high as 50 percent.) So what came of all those billions? Just a few months ago, real-estate data firm Zillow.com put the percent of mortgage-carrying households facing negative equity at 28.4 percent. If our calculations are correct, that means there are now more, not fewer, people struggling to pay off their mortgages. That said, Obama's 2009 initiative didn't outright forgive anyone's mortgage debt — like the Irish plan would — rather it lowered interest rates, lengthened payback periods, and provided incentives to servicing companies to ease off borrowers.

But with several high-profile people starting to sound off that the stimulus should've been larger — the Times' Paul Krugman, Bill Clinton, former Treasury Secretary Larry Summers, even GOP presidential hopeful Jon Huntsman — maybe the government should be considering a second, more aggressive mortgage bailout. Though perhaps it's best to wait just a few months and see how the Irish make out.

Ireland to Mull Mortgage Forgiveness - Minister [NYT]

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Photo: Mark Ralston/AFP/Getty Images