Mortgage Crisis: No Political Solution to a Math Problem

Rachel Keyser and her daughter, Sydney, stand
in front of their house in Deerfield, New Hampshire.
(photo: Chris Arnold/NPR)

Dylan Ratigan and Eliot Spitzer, Reader Supported News

12 February 12

his week officials from the Obama administration, the banking regulators, and state Attorney Generals announced a settlement of claims stemming from the financial crisis. The nominal amount put forward as the cost of the settlement is $26 billion, and in return the banks will be released from civil claims on origination of mortgages and the falsification of documents in the foreclosure process, or "robosigning". This caps off a month of political noise on the housing situation which started at the State of the Union, when the president announced a task force on financial fraud headed by officials from his administration as well as New York Attorney General Eric Schneiderman.

An investigation, and a multi-billion dollar settlement. That sounds like a lot, until you put it into perspective. Here are the numbers. Roughly half of homeowners with mortgages are underwater, which means they owe more than they own, to the tune of $1 trillion or so. And housing values are still declining so far in this "recovery", throwing more homes underwater. In terms of an investigation, the Savings and Loan crisis used roughly 1000 FBI investigators to uncover fraud - this task force taking on a crisis forty times more severe will employ 10 FBI agents.

There's a reason this is so inadequate to the problem at hand.   READ MORE

Superb Idea: Student Loan Payback Based on Earnings

Slate's Eliot Spitzer (yes, that very one) thinks the way we pay for higher education is bonkers, and he's right. College costs too much. It's a financial deterrent that prevents people from pursuing degrees and career paths of social (but not financial) reward-or from attending altogether. His solution has been been praised by (otherwise diametrically opposed) thinkers Milton Friedman and James Toobin Tobin. It's the income-contingent loan. Or, as he puts it, the smart loan:

Instead of paying upfront or taking loans with repayment schedules unrelated to income, students would accept an obligation to pay a fixed percentage of their income for a specified period of time, regardless of the income level achieved. Suppose a university charged $40,000 a year in annual tuition. A standard 20-year loan in the amount of $160,000 (40,000 times four) would produce an immediate postgraduate debt obligation of $1,228.50 per month, or $14,742 per year, not sustainable at a salary of $25,000 or anything close to it. Under a smart loan program, the student could pay about 11 percent of his income, with an initial payback of $243 per month, or $2,916 per year, which is feasible at a job paying $25,000. If, after five years, the student's salary jumped to $100,000, payments would jump accordingly and move up over time as income increases. After 20 years, assuming ordinary income increase, the loan would be paid off.    READ MORE