Affordability and mortgage design: Permanent buydowns and buyups

Abstract

A simulation model that mirrors the actual practices of lenders in setting qualification requirements for mortgage loans is used to assess the impact of permanent buydowns and buyups on the maximum sale price that buyers can afford. Buydowns are reductions in the coupon rate traded off against higher discount points; buyups are the reverse. Although buydowns have little effect on afford ability, buyups can have significant effects. Their potential is largely unrealized, however, because of the call risk to lenders of loans carrying premiums. The authors propose a “discount recovery” provision, which would be similar to a prepayment penalty except that the payment upon prepayment would be tied to the amount of the discount foregone by the lender. This would protect lenders against call risk, giving them every reason to offer buyups as a way of expanding demand.     

Coal and nuclear technologies: creating a false dichotomy for American energy policy

The American electric utility industry is entering a moment of transition. Once viewed as a stable and secure consortium of publicly regulated monopolies that produce and distribute electricity, the industry has weathered market restructuring only to face the ever-present risk of natural disasters, price fluctuations, terrorist attacks, and blackouts. This paper uses five criteria—technical feasibility, cost, negative externalities, reliability, and security—to evaluate the broad portfolio of energy technologies available to American electricity policymakers. Upon close inspection, energy efficiency practices, renewable energy systems, and small-scale distributed generation technologies appear to offer many advantages over large and centralized nuclear and fossil fueled generators. Contrary to the mimetic commentary produced by the media, these three approaches would present policymakers a superior alternative for curbing electricity demand, minimizing the risk of fuel interruptions and shortages, helping improve the fragile transmission network, and reducing environmental harm     

Making Government Accountable: Lessons from a Federal Job Training Program

This article describes the evolution of a performance measurement system in a government job training program. In this program, a federal agency establishes performance measures and standards for substate agencies. The performance measurement system's evolution is at least partly explained as a process of trial and error characterized by a feedback loop: The federal agency establishes performance measures, the local managers learn how to game them, the federal agency learns about gaming and reformulates the performance measures, possibly leading to new gaming, and so on. The dynamics suggest that implementing a performance measurement system in government is not a one-time challenge but benefits from careful monitoring and perhaps frequent revision.     

The convergence of fiscal regimes and the decline of the Tiebout effect

A measure of waste from the competitive rent-seeking activity of special interest groups in federal, state and local budgets was calculated over the period 1900–88. This period in U.S. fiscal history is characterized by constitutional changes that have made for more transparency in governmental fiscal activities and for greater diffusion of taxes. The XVI Amendment to the Constitution created the progressive individual income tax (the corporate income tax was judged to be an excise tax in 1909 and passed the test of constitutionality). High marginal tax rates are a justification for a high average level of taxation. The Full Employment Act of 1946 insitutionalized government deficits as a means of meeting a political objective. As a result, opportunities for rent-seeking through budgetary reallocations rose in the United States. In the first two decades of the 20th century, waste at all levels of government represented about 10 percent of incremental national output. Today, waste is three times that amount.The transparency and diffusion of taxes are highest at the federal level and least at the local level. Rent-seeking through budgetary reallocation has followed the public purse. One explanation for the observed centralization of government in the 20th century may be that opportunities to concentrate benefits and diffuse taxes are highest at the federal level.