The Mortgage Crisis: A Modest Proposal
The election of Obama did give him a clear mandate to use the powers of the Executive as well as his leadership in Congress to intervene in the economy. So here's a modest suggestion.
Everyone agrees that in dealing with the mortgage crisis it is critical to keep people in their houses. To do that we have to have ways to renegotiate their mortgages. During the campaign, Obama proposed using federal powers to clamp down on fraudulent lending practices (including the creation of a federal criminal offense), establishing a "Credit Card Bill of Rights" to help prevent people from being driven into bankruptcy in the first place, and reform of the bankruptcy system to allow estate trustees to renegotiate mortgages and an exemption for bankruptcies caused by medical expenses. Those are all good ideas, but there has to be a program to renegotiate predatory mortgages before bankruptcy occurs. The problem is to make sure that such a program is only used in appropriate cases of need to keep people in their houses, not gamed to increase the value of investment properties. Conversely, there is a problem of fairness if people who entered into mortgages they can not pay - whether through stupidity (defined here as "listening to Alan Greenspan") or fraud by lenders - are rescued on terms more favorable than those available to the people who acted prudently and carefully in the first place.
Historically, the way to get a large-scale social welfare benefit of this kind through is to make it extend to everyone: think Social Security and Medicare. It may be that as a combination of politics and economics the only alternative is to give every mortgage holder a one-time shot at a 30-year fixed rate set at a reasonable but not unduly favorable interest rate: say 7.5 or 8.0%. Such a rate is high enough that banks that were careful lenders are not being punished for the misdeeds of others. It is also high enough that people whose mortgages are already below that rate - the people who got good mortgages from prudent lenders -- will have no incentive to take advantage of the program. True, some people in the middle who are not truly in need will benefit, and some people will be unable to make the payments even on those terms and have to face foreclosure. But it is very difficult to conceive of another solution that does not end up rewarding the people who caused the problems in the first place while punishing people who "played by the rules."
A plan of this kind could be an excellent first objective for the new administration. It directly addresses the concerns of McCain supporters as well as Obama supporters, it could garner widespread bipartisan support, and it would demonstrate a clear departure from the Wall Street orientation of the Bush administration's approach. It's only one piece of a solution -- the bailout has to be modified to provide direct incentives for lending rather than just throwing money at banks, for starters -- and there is a lot left out of this description. But it might be a very good place to start.
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Good idea - problem will be in deciding the definition of "predatory mortgages". You need the rules so you can figure who gets to renegotiate.
A proposal that is getting a lot of attention is for all homeowners whether in foreclosure or not to be offered a one time Opt-in opportunity to place a "deed restriction" on their property with a 3% cap rate for sale purposes. Those that opt-in would get a new appraisal (30% to 50% less than a comparable non-deed restricted home) and a new loan with the "delta" paid to the lender with tax credits.
The result would be the launch of a National Workforce Housing Program which is much needed.
It would not be a give-away or bail-out since the homeowner would be paying for it by forfeiting the future "free market" appreciation of their home.
It would not encourage people that can afford the home they own to get in on a bail-out they don't need.
The "deed restriction" would assure that the home would remain affordable to working families forever.
Homeowners that opt-out of the program would remain "free market" homes and would win or lose according to the marketplace. They would also be rewarded by an end to foreclosures and the ensuing loss of home value from foreclosed homes in their neighborhood.
Bank owned and developer owned homes could also participate in the program under the same conditions of a deed restriction and a cap rate.
The homes would be scattered and no one would be able to tell the difference between a deed restricted and a free-market home.
The ROOT CAUSE of Stock Market Colapse is the "TRICK" Mortgage CRISIS not the Banks!
What can Obama do?
Bush-Paulson are President!
If Bush-Paulson will step DOWN then Obama can implement change!
Otherwise, we are stuck with Bush until January 21, 2009.
Banks are NOT LENDING so it is time to stop the BAIL OUT!
If banks refuse to cooperate then lets stop this GIVE-AWAY!
The Banks must return the funds to the Taxpayers so we can Bail out the Homeowner Walking-Aways and Bankruptcies.
As Chief Executive Officer, the President's most urgent policy-mandate should be....
Lawlessness within this government will not be tolerated. You will be ferreted out and you will be impeached. This government exists "by the consent of the Governed" for the purposes (among others) set forth in the Preamble, and therefore it has a Positive Duty, first-and-foremost, to "the Governed." There will be no exceptions. Nothing is "off the table."
What would such a declaration do? It would "lift all boats." (And the boats would get considerably lighter as the rats poured out. Let them go. Let them drown.)
Our nation today is a nation of 300 million Plaintiffs. This is crime. Let us "act accordingly."
Pelosi OWES Americans and EXPLANATION for why impeachment is off the table!
Obama plans Cabinet Position in Technology
FIRST Obama Technology Project, help restore Middle Class and stop "Homeowner Walkaway Crisis!"
FIVE FACTS:
1. American Taxpayers Own Fannie, Freddie, interest in AIG, and group of Banks!
2. Mortgage Companies and Banks are at CENTER of Housing and Financial CRISIS!
3. Crisis Continues Because Homeowners can not Afford "TRICKY Adjustable Loans" and are Walking Away!
4. The Current FED RATE is 1.0%!
5. Technology (Internet) are Sophisticated Tools for Automating 98% of a Loan!
Use the Internet, Automation, and New Taxpayer Owned Banks to provide direct low cost loans, Eliminating Corrupt Middle Men (i.e., Mortgage Companies and Banks)?
FIXED rate new loans could be very low, perhaps 2.5% to 3.5%, to Provide New Taxpayer Owned Banks with a "1.5% to 2.5% margin!"
Why such low rates? Because Middle men Removed - Direct from FED Money Rate of 1.0%!
FUNDED Corrupt Banks so Fund American Mortgages!
Automation verifies employment, home title, credit, and 98% of loan Preparation.
Eliminates mortgage fees, bank fees, title fees, most verification fees, and most documentation work.
Technology Saves more than Bailouts.
Savings: Pay debts, buy American Green Cars, buy Real Estate, and American goods plus help other countries in crisis by buying their goods!
Removes layers of processing, reduces obligations, keeps people in their homes, reduces burden on banks, and stimulates economy!
For some families this could save $500 to $1,500 per month and in some cases more.
Your idea could work for new loans, unless I missed something. The government (Freddie, Fannie, Fed Home Loan, FDIC, etc)already owns $8 trillion of $10 trillion in mortgages, and $3 trillion are in subprime and Alt-A loans. I don't know th percentage of defaults, but he total prolrm is too large even for the government. It seems to me the easiest solution is to restructure the loans directly outside of bankruptcy to 40-year or 50- year loans with the current principle and discounted rates as you suggest, whatever combination works to keep the borrower in their homes.
If we start bailing everyone out, I need a $50,000 downpayment so I can buy a house too. So hwere is my share--I have excellent credit.
I somehow doubt this will happen and think it will have to be on a case-by-case basis.
As for helping the economy itself, I would imaging that Obama will in part focus on building and updating infrastructure as well as on energy innovation. Both of these would create millions of new jobs, and that alone could have a dramatic affect on the economy. Contrary to what John McCain and most other Republcans think, enacting a "spending freeze" by the government is a sure-fire way to sink our economy even further into the ground. It must be focused on job creation and spending tax dollars in a way that what we have afterwards is something to show for it (new jobs, new roads, new forms of energy, etc.)
The housing crisis has to be handled with a multi-level approach.
Every city has substandard housing that is not worth saving. Hire people to gut the salvageable items, like copper, and then have them tear them down. Make the lot usable to the neighbors for gardening.
Quality homes with yards have to be built that are small and affordable for young families. (I don't know that I'd use these megabuilders. Also we need someone who will make sure only legals and not aliens are employed for these jobs.)
These megahomes that have been built need to be divided and remodeled so that multifamilies can live in them.
Loans on affordable houses need to be readjusted with new rates and terms.
This is truly a depression ara crisis that needs a "new deal" type of rescue.
I actually like your ideas. Thank you.
One of the problems that I saw were housing prices during this boom. I looked into buying a home and couldn't find anything within my budget. No new builds and certainly no exsisting homes. Housing needs to be affordable. Renting these days isn't even affordable. The top floor 2 bedroom in a crack house will run you almost 1000 here. Does that make sense.
8% is fair and reasonable. Make sure its not below 6%. we dont want to incentivize people to just turn deadbeats and threaten to not pay their mortage !!
It needs to be adjusted to income and area.
Adjustment to income and area is crucial!!!
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