New Mortgage Proposed to Help Homeowners and Re-energize the U.S. Housing Market

CREF Director Daniel Quan proposes a new mortgage contract that will not only encourage a homeowner’s desire to accumulate equity, thus leading to a more stable housing market, but will also provide a boost to the economy. He argues that such benefits can easily be achieved at very little cost to the government.

In the policy article entitled “The Curtailment Mortgage: A Proposal to Benefit Homeowners,” Prof. Quan suggests that the one-time benefit of the current Home Affordable Refinance Program can be extended to multiple periods by allowing homeowners to make regular curtailment payments that lower mortgage payments. The current practice of using curtailment payments to reduce the loan’s maturity, while keeping the remaining mortgage payments the same, provides a disincentive for homeowners to pay off their mortgage debt. In a curtailment mortgage, the mortgage term would remain the same, but the payments would adjust, thereby putting additional cash into the homeowner’s pocket. Given the long term nature of mortgage debt, a reduction in payment has the corresponding effect of increasing the homeowner’s permanent income.