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ST. LOUIS NEWS TODAY - Friday, July 3, 2009
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Bi-state Governors Team Up to Compete for Chicago-St. Louis High-speed Passenger Line
ST. LOUIS (SLFP.com), June 28, 2009 - Missouri Gov. Jay Nixon and Illinois Gov. Pat Quinn visited the St. Louis Gateway Amtrak Station, June 22, to detail their shared priorities for competing for federal recovery funds to establish a high-speed passenger rail line between Chicago and St. Louis.
Just days after the federal government issued guidance to states on the application process for high-speed rail funding, the two Governors outlined their vision for a Chicago-to-St. Louis line as a tool for job-creation and regional economic growth. In addition, the Governors signed a Missouri-Illinois Memorandum of Understanding to solidify the bi-state partnership on this critical recovery project.
"As always, the Show-Me State is ready to lead the nation in the development of this next-generation mode of transportation between two of the major commercial centers in the nation," Gov. Nixon said. "Because of the planning and foresight of our Midwest Interstate Passenger Rail Commission, enhancing the route from Chicago to St. Louis for high-speed trains would create jobs immediately, provide a cost-effective alternative for travelers and position the entire corridor for economic recovery, growth and transformation in the years to come. I look forward to working closely Gov. Quinn and our colleagues in other states to promote high-speed rail throughout the Midwest, beginning with the priority line between Chicago and St. Louis."
"We must follow President Obama's lead by investing in growth and efficiency for transportation and make high-speed rail in the Midwest a reality," said Governor Quinn. "I look forward to working with Governor Nixon to compete for the approximately $8 billion dollars in competitive funds for intercity rail that would allow us to reduce the travel time from Chicago to St. Louis, the fastest growing train route in the state, from more than 5 hours to less than 4."
Last Wednesday, President Barack Obama's administration released guidelines for state applications for high-speed rail funding. Based on these federal guidelines, rail projects in the Midwest, and especially the Chicago-to-St. Louis line, appear well-positioned to compete for these recovery funds. Under the guidelines, special consideration will go to projects that can be completed quickly, that will create jobs immediately and that will result in a demonstrable benefit for the public.
Both Missouri and Illinois are members of the Midwest Interstate Passenger Rail Commission, which has been studying, planning and evaluating possible rail expansions throughout the region since the mid-1990s. In addition, the state of Illinois already has completed an environmental impact study on the Chicago-to-St. Louis corridor.
The Memorandum of Understanding further underscores the priority Gov. Nixon and Gov. Quinn share for leveraging these existing data and additional resources to ensure a competitive advantage for this priority project. As the memorandum indicates, "[Both] states will work cooperatively, bringing to bear all the appropriate resources, expertise, and information of each state for the purposes of transforming state economies and enhancing regional transportation infrastructure by competing for federal high-speed rail funding for a high-speed rail line connecting downtown Chicago, Illinois, with downtown St. Louis, Missouri."
Many Homeowners Say They Would Simply Walk Away From Their Loans
ST. LOUIS (SLFP.com), June 28, 2009 - While the Obama administration's housing policy has been largely influenced by a study of the Boston housing market during the 1990-91 recession in which homes devalued by approximately 10 percent, new research suggests that a novel phenomenon is at hand in the fallout of today's more severe housing crisis - strategic default on mortgage loans.
Given that homes in numerous parts of the country have lost more than 30 to 40 percent of their value, many homeowners say they would simply walk away from their loans - without fear of repercussion.
A new paper, entitled "Moral and Social Restraints to Strategic Default on Mortgages," looks at American homeowners' propensity to default when the value of a mortgage exceeds the value of their house, even if they can afford to pay their mortgage. By using new survey data, the paper estimates that more than a quarter of defaults on mortgage loans are strategic, especially when home values have fallen by more than 15 percent.
The new research was led by Paola Sapienza (Kellogg School of Management at Northwestern University) and Luigi Zingales (University of Chicago Booth School of Business) - co-authors of the quarterly Chicago Booth/Kellogg School Financial Trust Index - as well as Luigi Guiso (European University Institute). With data collected from surveys conducted within the last six months as part of the Financial Trust Index, this paper is the first to examine the economic and moral implications of strategic default in the current recession.
Negative Equity
The study of the Massachusetts housing market during the 1990-91 recession found that very few people who could afford their mortgage chose to walk away from their homes. Consistent with the earlier paper, this new research shows that homeowners refrain from defaulting as long as negative equity does not exceed 10 percent of the value of the home.
After that level, however, the researchers found that homeowners start to default at an increasing pace, and walk away massively after decreases of 15 percent and more. In fact, 17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house.
"Housing policy under the current administration has focused on reducing households' cash flow problems in response to the housing crisis, but no one has addressed the negative equity issue as part of public policy regarding housing," said Sapienza "We're in a completely different economic environment today, where for the first time since the Great Depression millions of Americans have mortgage loans that exceed the value of their home."
Moral and Social Factors in Strategic Default
According to the researchers, moral and social variables play a significant role in predicting strategic default. People surveyed who said it was immoral to default were 77 percent less likely to declare their intention to do so, while people who know someone who defaulted were 82 percent more likely to say they would default themselves.
"The most important barriers to strategic default seem to be both moral and social," said Zingales. "Our research showed there is a 'multiplication effect,' where the social pressure not to default is weakened when homeowners live in areas of high frequency of foreclosures or know others who defaulted strategically. In fact, the predisposition to default increases with the number of foreclosures in the same ZIP code."
"Factors such as age, location, political affiliation and attitudes toward government intervention also impacted respondents' responses to the morality of strategic default," he added.
Specifically, the researchers highlighted the following data:
-- People under the age of 35 and over the age of 65 were less likely to
say it was morally wrong to default compared to middle-aged
respondents.
-- People with a higher education (eight percentage points) and
African-Americans (14 percentage points) are less likely to think it
is morally wrong to default, whereas respondents with a higher income
are more likely to think it is morally wrong.
-- Default is considered less morally wrong in the U.S. Northeast (six
percentage points) and West (8 1/2 percentage points).
-- There was little difference in the moral view of strategic default
among Republicans and Democrats, but Independents were less likely to
say defaulting is immoral.
-- Respondents who supported government intervention to help homeowners
were 12 percentage points less likely to say strategic default is
immoral.
"As defaults become more common, the social stigma attached with defaulting will likely be reduced, especially if there continues to be few repercussions for people who walk away from their loans," concluded Sapienza. "This has an adverse effect on homeowners who do pay their mortgages, and the after-effects of more defaults and more price collapse could be economic catastrophe."
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