“Matters of Principal” – Mortgage bailout misses the mark

School of Law Professor Susan Koniak, in a New York Times op-ed, says the Obama mortgage bailout plan won’t stop foreclosures because it concentrates on reducing interest payments, not reducing principal – a waste of taxpayer money that won’t fix the problem.

“For subprime and other non-prime loans, which acount for more than half of all foreclosures, the best thing to do for the homeowners and for the bondholders is to write down principal far enough so that each homeowner will have equity in his house and thus an incentive to pay and not default again down the line.  This is also best for taxpayers, who now effectively guarantee the securities linked to these mortgages because of the various deals we’ve made to support the banks.”

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