News and Commentary
In his Wall Street Journal op-ed (posted here on the Brookings website), William Gale makes a damning case against the mortgage interest deduction. Similar countries without an MID have higher homeownership rates than the U.S.; the MID simply encourages the construction of larger, not new homes; and because it is only accessible to those with a mortgage, it is inherently regressive.
Alex J. Pollock agrees with current FHFA Director Mark Calabria that Fannie Mae and Freddie Mac should have the same capital requirements as all other financial institutions dealing with mortgage risk–4%, compared to its current 0.2%.
The Bank Policy Institute criticized former Fed Governor Daniel Tarullo’s call for a stress capital buffer (SCB). Using BPI’s calculations, the amount of excess capital (capital held above minimum requirement) would decline from $38 billion to $35 billion with the SCB. Though BPI decries this proposal, this is a modest reform that would still keep capital requirements below the recommended 20%.
New Research
A new paper from the Joint Center for Housing Studies of Harvard University examines the effects of the Home Affordable Refinance Program (HARP), and how it helped underwater homeowners during the Financial Crisis. This program was designed to help homeowners refinance their mortgages, reducing mortgage defaults. This paper is interesting to compare to a previous study on the Home Affordable Modification Program, which was designed around principal reduction. This study complements the JCHS findings, as it found that refinancing reduced default, while simple principal reduction did not. In the case of underwater homeowners during an economic downturn, it is liquidity, not necessarily debt, that matters most.
A new paper from NBER finds that reductions in travel time between a bank’s corporate headquarters and its local branches boosts business lending in the county in which the branch is located.
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