The conclusion poses a challenge to housing advocates and to some extent the prevailing views of President Barack Obama’s administration, Fed officials and other US regulators. Obama announced a $75-billion plan in February that concentrates on refinancing or modifying loans for as many as nine million homeowners.

“One of the most influential strands of thought contends that the crisis can be attenuated by changing the terms of ‘unaffordable’ mortgages,” the economists said in the paper posted on the Boston Fed’s website Saturday. Yet, policies aimed at reducing a borrower’s debt-toincome ratio “face important hurdles in addressing the housing crisis,” the authors said.

Instead, the government should consider alternatives such as loans to homeowners to bridge the loss of income for one or two years caused by unemployment, or helping borrowers become renters, the economists said.

Boston, Atlanta

The authors include Christopher Foote and Paul Willen, who are senior economists and policy advisers at the Boston Fed; Kristopher Gerardi, a research economist and assistant policy adviser at the Atlanta Fed; and Lorenz Goette, a professor at the University of Geneva and former economist at the Boston Fed.

The paper doesn’t specifically discuss the merits of the White House plan.

The federal government has used policies to encourage loan modifications as a principal tool of attacking the surge in foreclosures over the past year. Fed Chairman Ben S. Bernanke, in a December speech, called for “greater standardization and efficiency” in programs to ease loan terms, while FDIC Chairman Sheila Bair has pressed the Treasury and mortgage companies to step up the pace of modifications.

Eric Rosengren, president of the Boston Fed, said in a January speech that loan servicers should be able to increase mortgage modifications as interest rates decline.

At the same time, many borrowers should be able to refinance through Federal Housing Administration loans, Rosengren said in the speech. Also, some borrowers just won’t be able to make their mortgage payments and could instead receive assistance to move to a rental property, he said.

Source: Bloomberg