09/12/2011 04:26 pm ET | Updated Nov 12, 2011

Subprime Mortgage Solutions Without Government Bailouts

It is not the purpose, duty, or obligation of government to (a) bailout the mistakes of the private sector whether they be business or individual; or (b) enable elected officials to devise policy and proposals that pander for votes or campaign support from special interests at public expense.

The housing and mortgage crises have now become a diversion from real and effective economic recovery, job creation, and reindustrialization policies and proposals. Housing is being falsely promoted as the only economic fix in reach and the primary means to create demand. Proposed government schemes to bailout banks (again), homeowners, and Fannie Mae and Freddie Mac with refinancing programs for underwater mortgage homeowners, subsidized debt service, government guarantees, and home rental support have not and will not work and are unaffordable.

A simple cost free solution is to change the bankruptcy laws to permit judicial cram-downs on home owner mortgage to market interest rates and values and limit fees, penalties, and legal costs. This would:

1. Not cost the federal government anything, not add to the national debt, reduce government involvement, and place responsibility and cost on the private sector parties where it belongs;

2. Help the vast majority of underwater mortgage homeowners;

3. Give affected mortgagees the options to (a) voluntarily reduce the mortgage principle and debt service to market levels for financially responsible mortgagors or have the courts do it and write off the costs, (b) foreclose on mortgagors who are unwilling or unable to meet market reevaluation or debt service, (c) allow mortgagees to facilitate foreclosure and save costs by allowing at risk, responsible or temporarily unemployed underwater subprime mortgagors a rental arrangement with a future right to repurchase their property at the then remaining mortgage principle (d) rent to former mortgagors or new parties, (e) resell the mortgage or the property when and if it regains possession or gets ownership (f) set up an off balance sheet company for said underwater subprime mortgages and repossessed properties to address these issues which would help to fiscally stabilize individual banks and, collectively, the financial sector;

4. Maintain the tax base of communities and stabilize neighborhoods.

Good housing stock must not be allowed to be destroyed to reduce tax obligations or maintenance and repair costs by banks or their affiliated mortgage or mortgaging servicing companies. Once repossessed each house could be individually directly resold or auctioned or given back to the local community for public auction and written off by the donor.

Harry L. Langer