White House Mulls Reagan Adviser's Proposal

An economic adviser to former President Ronald Reagan has proposed a way to help struggling homeowners lower their mortgage payments, and it has caught the eye of White House officials because it could reduce defaults, cushion falling house prices, and lower the loan-to-value ratios of existing mortgages. The federal government would provide an unsecured loan equal to 20% of the homeowner's existing mortgage with a low rate that is payable in 15 years under the proposal outlined by Harvard University Professor Martin Feldstein in a Wall Street Journal editorial. With the pay-down mortgage loan, borrowers would pay less in total interest and have less incentive to default or walk away due to falling house prices because they could not escape repayment of the government loan. The lender/investor ends up with a more secure mortgage and a check for 20% of the mortgage. President Bush's economic adviser Edward Lazear said the White House is looking at "Feldstein's idea." The Harvard professor said the government could implement his "substitution loan" program in a few months without creating a large bureaucracy.