As we saw with Texas, the shape of a state’s housing market can go a long ways in predicting local economic conditions. Note that there is a strong correlation between the percentage of underwater mortgages in a state (i.e., mortgages on which the homeowner owes more than his property is worth) and the unemployment rate:

Mike Konczal argues that this graph makes a case for using housing relief — either refinancing through Fannie Mae and Freddie Mac or principal writedowns — to further stimulate the economy. The upside, he notes, is that a housing stimulus can be quick and well targeted: “There’s no environmental review to conduct or long-delay in actually getting this into motion; underwater consumers who want to knock a few hundred dollars off their mortgages are well-incentivized to initiate, carry out and make sure this gets completed themselves. It outsources much of the bureaucratic requirements to those consumers who stand to benefit.”

But how big a stimulus would this actually provide? Konczal cites one plan by Columbia’s Chris Mayer and Glenn Hubbard to get Fannie and Freddie to help underwater homeowners refinance their mortgage. Here’s a Bloomberg write-up: “Fannie Mae and Freddie Mac could face a one-time loss of $40 billion to $60 billion because the new HARP loans would pay lower interest rates, Mayer said. The cost would be offset by fewer defaults and it would put $50 billion to $70 billion a year in homeowners’ pockets, he said.”

That’s about as much total money as, say, extending unemployment insurance, which, according to Moody’s chief economist Mark Zandi helps boost the economy by roughly 0.5 percent of GDP. Granted, unemployment tends to have a larger multiplier effect — because people without jobs tend to spend the money quickly, rather than pocket it — and so makes for a much more effective stimulus, but this does give some sense as to the scale involved.