President Obama hopes to stabilize the U.S. housing market, and thereby the broader economy, by helping struggling homeowners renegotiate their mortgages on more favorable terms.(The Week)(Barack Obama)(Brief article)

President Obama hopes to stabilize the U.S. housing market, and thereby the broader economy, by helping struggling homeowners renegotiate their mortgages on more favorable terms. ("Helping" here means coercing the banks to go along with it.) The shortcomings of this proposal are several and acute, but the most important is that evidence suggests it will not work. Half of the mortgages that were modified in the first quarter of 2008, for example, were in default again within six months. An April 8 report from the Boston Federal Reserve supplements those findings and identifies negative equity as the main factor in mortgage defaults, which makes sense: Homeowners with equity in their homes can sell them in case of severe financial distress, but those with negative equity have no reason ...