Stimulate the Economy, Don't Play Politics With It

One would involve borrowing from future federal housing subsidies and making them available this year to state housing authorities. With prices low and going lower, and so much unsold inventory on the market, this would be the perfect time for housing authorities to buy condos and townhouses and rent them to eligible lower- and moderate-income families. In the long run, the government would save money; in the short-run, it would help stabilize the housing market.

The other idea would be for the government to jump-start the creation of a new type of housing finance instrument that would be a blend of debt and equity and could be used both to spur demand for housing and avoid foreclosures.

Andrew Caplin, an economist at New York University, has been refining this idea for more than a decade. In simple terms, these "shared-equity mortgages" would offer homeowners the opportunity to lower their monthly interest and principal payments in exchange for sharing any long-term appreciation in the value of the house. The two parts of the instrument -- the traditional mortgage and the shared-equity component -- could be separated by the originator and each sold separately into financial markets.

This would be a particularly useful instrument for lenders and homeowners looking for a way to avoid foreclosures through workouts and refinancings -- a form of debt-for-equity swap. It could also be used to expand the pool of potential home buyers in a way that doesn't repeat past mistakes of lowering underwriting standards or put people into homes and mortgages they can't afford.

Introducing this new instrument wouldn't cost a dime. All it would require is a few minor changes in the tax code and a federal preemption of some states' lending laws. Fannie Mae and Freddie Mac would probably have to step in and jump-start the market for the new "shared equity" instruments, at least until there is enough experience with them to attract private underwriters into the market. To do that, the housing finance giants would need special legislative authorization.

There's nothing particularly radical or complicated about any of these ideas. A few involve spending new money, others involve shifting money from the future to the present, while others don't cost anything. But taken together, they wouldn't increase the long-term budget deficit. And all meet the test laid down by former Treasury secretary Larry Summers of being "timely, temporary and targeted."

So can anyone explain to me why our top elected leaders think that they're better off calling each other names and pushing proposals they know can't be enacted, rather than sitting down and hammering out a similar program that could be acted on when Congress returns next week and signed by the president when he arrives at the Capitol later for the State of the Union address?