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How not to fix the housing market

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Charles Krupa / AP / File

(Read caption) In this April 12, 2011 photo, a sale pending sign is posted on the realty sign, at a home in Wilmington, Mass. The mortgage interest deduction makes it easier for buyers to pay off a house, but it is a spending program that should be phased out, writes guest blogger Roberton Williams.

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The American housing market is in trouble. Prices continue to fall, many would-be buyers can’t qualify for mortgages, sales remain sluggish, and the backlog of potential foreclosures continues to grow. The benefits of the temporary tax credits offered in 2009 and 2010 have long since worn off. Meanwhile Congress is working to revamp Fannie Mae and Freddie Mac while the FHA gets tougher and tougher on new borrowers.

Housing clearly needs another boost and I have just the ticket.

Let’s use Fannie and Freddie to deliver direct cash payments to buyers when they first take out mortgages and then send them checks each year until they pay off their loans. To boost demand as much as possible, let’s give the most money to rich people who buy the biggest houses.

After all, because jumbo mortgages have higher interest rates, giving bigger subsidies to people who buy the biggest houses in the most expensive markets makes sense. To really encourage people to borrow the most they can, let’s pay 35 percent of the mortgage interest for the highest-income homebuyers but only, say, 10 or 15 percent for moderate-income people who borrow less.

Of course, if you happen to live in a place that has cheap housing and low property taxes, you won’t need any subsidy so we won’t give you one.

It may sound kind of crazy, maybe even totally misguided, but it just might work.

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