Economy

Americans on Housing Aid: Unfair but Necessary

by Dennis Jacobe, Chief Economist

Fifty-one percent say helping homeowners pay their mortgages is “unfair”

PRINCETON, NJ -- By 51% to 46%, Americans are more likely to say that government aid to help certain homeowners who cannot pay their mortgages is "unfair" rather than "fair." At the same time, 59% of Americans say such government aid is necessary to stabilize the U.S. housing market.

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Mortgage Aid

The S&P/Case-Shiller Index released Tuesday shows housing prices in 20 U.S. metropolitan areas were down 18.5% in December from the prior year. RealtyTrac reports that home foreclosures were up 17.8% in January from a year earlier. Given this context, it seems reasonable that the federal government should consider aid to distressed homeowners to prevent even further deterioration in these numbers.

While many Americans see the government's mortgage plan as "unfair" -- perhaps feeling that making mortgage payments is an individual's responsibility, and tax dollars shouldn't be used to help those who cannot make their payments -- a solid majority see such mortgage assistance as necessary. Additionally, most see President Obama's proposals as not doing any harm to the housing market -- 60% believe these efforts to reduce home foreclosures will make the housing market a little (54%) or a lot (6%) better, 21% say it will make no difference, and only 15% think it will make things worse.

At the same time, Americans are evenly split on whether the home mortgage plan will help stabilize housing prices in their communities -- the essential rationale for government invention -- with 46% saying it will and 48% saying it will not.

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Housing Aid: Mortgage Aid vs. Foreclosure Relief

Given the general level of economic distress and the unprecedented intervention of the federal government in the U.S. economy, utilizing the behavioral economics concept of "framing" -- that is, positioning these initiatives as being helpful to everyone and to the economy as a whole, as opposed to individual groups -- is taking on increasing importance. This is the case with the idea of "nationalization" of banks as well as with housing aid.

Although Americans feel that the provision of government aid for some distressed homeowners is unfair, a separate question in the poll found, at a general level, that 64% of Americans favor "giving aid to homeowners who are in danger of losing their homes to foreclosure." While both ways of framing the issue may help keep people in their homes, mortgage aid seems a lot less "fair" than aid to help people avoid foreclosure.

In this regard, it seems that many Americans may not recognize the inability of the modern housing finance system to deal with the current foreclosure debacle, as was possible in the past. Before securitization -- the combination and sale of a package of mortgage loans or other investments -- began to dominate the mortgage market, lenders holding mortgages in their portfolios had strong incentives to work with borrowers during times of economic stress. Lenders wanted borrowers to continue paying on their loans so they could keep the mortgage loans out of the "problem" category, and they would find a way to provide borrowers with forbearance during difficult economic times.

Securitization not only separates the mortgage loan holder from the lender who made the loan but may actually have divided it up among many investors across the globe. As a result, finding a way for the mortgage loan investor, the lender, and the borrower to work out a forbearance arrangement, even when it is advantageous to everyone involved, has become an incredible challenge. And all of the alternative solutions may also appear unfair, although they have not been tested in recent survey research. In this regard, addressing these problems using a new round of securitization -- possibly by making and packaging new, specially underwritten and priced mortgage loans -- may not only be "unfair" but may also compound the existing mortgage finance debacle.

Survey Methods

Results are based on telephone interviews with 1,013 national adults, aged 18 and older, conducted Feb. 20-22, 2009. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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Gallup http://www.gallup.com/poll/116101/Americans-Housing-Aid-Unfair-Necessary.aspx
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