Friday, March 07, 2008
How an Engineer Would Solve the Housing Crisis*
There have been many horrible proposals for fixing the housing crisis. Most of them involve forcibly changing the terms of the mortgages and some measure of taxpayer bailout. These solutions are great if your goal is to encourage moral hazard, reward excess risk taking and greed, and to emulate Argentina's view of the sanctity of a contract.
So I began to think how this would be solved if it were an engineering problem.
Say a community has 100 houses of varying values that are currently in default and will soon be foreclosed. Give each family the choice of moving into their defaulted neighbor's cheaper house and have that mortgage assigned to them. In the optimal scenario, 99 families shift to a cheaper house they can afford at the same time, and turn 99 of those defaulted loans into performing loans again. The poorest family of the cohort is placed in an apartment and the most expensive house of the lot is sold off normally. Problem solved.
[* Disclosure: This is a sponsored post, paid for by the Moving Van Association of America]
There have been many horrible proposals for fixing the housing crisis. Most of them involve forcibly changing the terms of the mortgages and some measure of taxpayer bailout. These solutions are great if your goal is to encourage moral hazard, reward excess risk taking and greed, and to emulate Argentina's view of the sanctity of a contract.
So I began to think how this would be solved if it were an engineering problem.
Say a community has 100 houses of varying values that are currently in default and will soon be foreclosed. Give each family the choice of moving into their defaulted neighbor's cheaper house and have that mortgage assigned to them. In the optimal scenario, 99 families shift to a cheaper house they can afford at the same time, and turn 99 of those defaulted loans into performing loans again. The poorest family of the cohort is placed in an apartment and the most expensive house of the lot is sold off normally. Problem solved.
[* Disclosure: This is a sponsored post, paid for by the Moving Van Association of America]
