His recommendations are great, and you can rationalize all of it from a social welfare perspective. I think he should add another group:
People who took out equity to pay for home improvements.
They should get the same treatment as people who used equity to cover health care costs.
Green points to a very nice paper form Michael Lacour-Little that shows that about half of southern California borrowers took out equity to buy toys like vacations and boats.
As to Richard’s worry that it would be hard to prove who was who here, I don’t agree. Economists are always allergic to transactions costs, but those are inevitable. If you want to get food stamps or your kid to receive occupational theory for his disability, you’re expected to document your entire freaking life down to the minutest detail. Homeowners wanting relief should face the same scrutiny. Or else barriers to resources should go down for other people in need, too.
Given that we are talking about giving away a lot of money to a particular class of people, some of whom are victims and others of whom are decidedly not, I think it’s reasonable to expect people to establish that at the time of their loan they had the documentation to prove the income they claimed even if they didn’t have to document that income to get their loan. Everybody has tax returns. Moreover, I think you can and should be expected to demonstrate where the home equity line of credit went. Hospitals issues bills and so do universities.
The question is how much time this would take, but you can’t get a student loan overnight, either.
For those who think the bad banks are enjoying the cream while poor little struggling homeowners are getting hosed, Lacour-Little shows that property owners in southern California extracted $2 billion of in equity gains while banks have a lost a billion on SoCal. This is a complicated story–much more so than David versus Goliath narrative.