At the trade-off of never being able to get a mortgage again, unless that's the bailout these homeowners get. Almost everyone will either sit tight or rent/sell at a loss. That being said, you will lose out on the public and private support of everyone who bought a house since roughly 2020. It doesn't matter if you've got a 3% rate if you're not getting your down payment out of the house.
The plan that makes the most sense to me is to keep housing prices constant/barely increasing while letting 3% inflation and gradual lowering of interest rates do its thing. Eventually the houses won't seem that expensive and those who locked in at high rates and high prices have an offramp through refinancing.
That's not the effect of abandoning a mortgage (or using the leverage provided by that option to secure lender approval for a short sale) in a non-recourse state.
(Source: been there, done that, have a new mortgage since.)
The potential credit hit wasn’t even a consideration.
I think this is a really good insight. The reason for long-lived NIMBY policies is because NIMBYs[0] vote and lobby more than everyone else does. I have, do, and will continue to vote for pro-housing policies, but there are a lot of people -- probably still in the majority -- who will not vote for anything or anyone that will reduce the value of their homes.
What matters is outcomes. If paying off the NIMBYs gets you a good future housing policy, then we should do it.
[0] I know "NIMBY" is generally a pejorative, and I agree with that for the most part, but I will admit that many NIMBYs are operating and voting quite logically, for their own interest, even if it hurts others, and hurts society collectively.
In non-recourse states, you'd expect to see defaults as people leave the keys in the mail to reduce their housing costs by moving next door at the reduced price or rent. More broadly, people don't like seeing their wealth go down.
> Is a tax dollar better spent placating grumpy homeowners
If it gets you the reform, yes. The point is you don't get housing reform with grumpy homeowners barring a massive shift in voting patterns.
Also, let's keep scope in mind. You only need to bail anyout out if you reduce home prices. If you hold them constant in nominal terms, that shouldn't generate pushback. (If you hold them constant in real terms, people can continue feeling wealthier.)