The NYT is worried about the next rash of resets of mortgages, this one in the Alt-A mortgage market, the segment that is rated between prime and subprime. They are worried that if nothing is done that house prices will decline too far. Someone has to get these folks a program so they can follow the housing crash. The problem in the housing market is falling prices. Mortgage resets were always secondary. NYT editors might repay a $400k mortgage on a home that is worth $300k, but most homeowners have more commonsense (or less money to waste). The main reason that mortgages are going bad in very large numbers is that prices have fallen. If prices had not fallen, then homeowners having trouble paying their mortgages would either borrow against their equity to meet their payments (as many had done before prices began to decline) or they would sell their home and put money in their pocket. The reset to higher interest rates is very much a secondary part of the story. The NYT's concern that house prices will fall too far is difficult to understand given its lack of concern about the rise of house prices during the bubble. There is no obvious reason that below trend house prices should be viewed as a more serious problem than above trend house prices. Below trend prices house prices benefit those who do not own a home. There is both a direct effect (it's cheaper to buy a home) and an indirect effect (non-homeowners will own a greater share of national wealth). Non-homeowners tend to be relatively lower income people. Above trend prices obviously benefit homeowners who tend to be relatively higher income people. It is perhaps worth noting in this context that the NYT's very strong held trade policy of selective protectionism (dubbed "free trade") also has the effect of benefiting higher income people. The NYT trade policy calls for subjecting manufacturing workers, who tend to be less educated, to competition with low-paid workers in the developing world. By contrast, it is content to leave in place the barriers that keep highly paid professionals (e.g. doctors, lawyers, and economists) largely protected from such competition.
--Dean Baker
