Today’s Mortgages Are Designed for Yesterday’s Borrowers, Law Prof Says
Traditional 30-year mortgages work well when borrowers have stable, long-term jobs. But in today’s economy, unemployment and job switches are more common, and mortgages need to change along with today’s changing workplace, a law professor argues.
Writing in the New York Times, University of California at Los Angeles law professor Katherine Stone asserts that “today’s mortgages are designed for yesterday’s borrowers.” She suggests a more flexible mortgage that allows borrowers who lose their jobs to convert to an interest-only loan for up to two years. The temporary switch would lengthen the period of the loan, but not increase the principal.
The Federal Housing Administration could encourage the practice by requiring the mortgages that it insures to have this feature, Stone says.
Another option is a federally created “career transition bank” funded by pretax contributions made by workers and employers to workers’ own personal accounts. When workers are out of a job, they could use the money to pay their mortgages. Any remaining funds could be paid out and taxed when a worker retires.
“Changing home loans to reflect the new, unstable employment landscape is crucial if we want to address the mortgage crisis over the long term,” Stone writes.
