May 10, 2008

Mark Zandi on a proposed housing bailout

The total cost of the plan would ultimately be very modest. At the extreme, the upfront cost would be approximately $250 billion, assuming the federal government purchased all 2 million loans that are expected to end up in foreclosure through the end of the decade at a 30% discount to their original value. According to the FDIC, this is just about the ultimate cost to taxpayers (in today’s dollars) of the early 1990s savings and loan crisis via the Resolution Trust Corporation. Of course, the government would not lose all $250 billion, as many of these homeowners would be able to remain current on their new lower mortgage amount. Even if only half of homeowners were to be good payers, which seems pessimistic, then the ultimate cost to taxpayers will certainly be no more than that of the recently-enacted fiscal stimulus plan.

~ Mark Zandi, chief economist, Moody's, "Zandi: A Mortgage Bailout Would Cost up to $250 Billion," WSJ Economics blog, February 27, 2008

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