Is It Cheaper to Give Money Directly to Hurting Home Owners?

BY Alicia Lozano  May 12, 2010 at 3:35 PM EDT

Question: I know hindsight is 20-20, but I wonder. Would we have been better off providing mortgage payment assistance directly to the homeowners? It seems to me that the banks are really interested in conserving capital right now, so there is no hurry to provide relief to the people trying to make mortgage payments. If we paid the money directly to the homeowners, and they in turn paid the banks, wouldn’t we have provided immediate relief to homeowners, while at the same time stabilizing bank income?

I understand that the program would be costly, but at least homeowners get some relief. I also understand the arguments about rewarding people for making bad decisions. As someone who didn’t, I in effect get rewarded by the prospect of higher taxes (for a long time).

Let’s suppose that the average person who is in trouble would benefit from $1000/mo. I don’t have the latest figures, but I am guessing that there are 3,000,000 mortgages in trouble. That comes to $3B per month for this program. Is that any more costly than the current approach?

Paul Solman: Well, using your numbers, $36 billion a year from taxpayers who didn’t overspend on their homes to those who DID is a hefty sum, no? $36 billion a year for the life of the loans?

Another question: If I now go out and overspend on a home and am subsequently threatened with foreclosure because I got a bargain “teaser” rate for two years, let’s say, do I get in on the program? I.e., is there a cut-off date and if so, when is/was it? Oh yes, and btw, suppose I WAY overspend? You gave figures for “the average person.”

I don’t mean to deride your suggestion. Ones like it were made early and often during the crisis. But it is not an easy fix.