My Plan to Fix the Housing Problem

Right now, there is a good government plan to address the housing problem. There is talk of allowing judges to reduce the principal on mortgages. In my opinion, this plan is unfair to banks and unfair to people that borrowed reasonable amounts of money.

Here is my plan:

If I take out a $700,000 mortgage, and can’t pay it, have the bank (or the government, if they buy the toxic loans) break the loan into 2 pieces:

1. The first piece is a hypothetical $300,000 loan (although this number could vary). The $300,000 loan would have a 0% rate and no principal payments due.
2. Create a new mortgage with favorable terms - $400,000 loan with 30 – 40 year life and a low 4.5% - 5.5% fixed rate.

If I ever sell the house, and the house sells for more than the $300,000 and $400,000 loans (whatever their balance is), I keep the profit.

If I try to sell the house for less than the two loan balances, then I first must offer it to the bank that holds the two loans.

This plan makes homes more affordable, but doesn’t allow for a free ride (with the exception of the favorable lending rates). I think it is a win-win; more people can stay in their homes, and banks will have less foreclosures to deal with.

If no one adopts this plan, then an alternative would be to give the banks an option to buy on the homes where principal balances are cut. In this case, homeowners can’t double dip, where they get a reduced principal balance but in 10-15 years can sell for a profit. The option would be indefinite, and the bank would benefit from any price appreciation.

These plans offer more fairness to all parties than any other plans I have heard. At least a dialogue on the topic may produce better answers than the government has to offer.

Comments

[MJJP:]

I've said this before and I will say it again and again as long as people are posting about real estate. One of the main reasons for the problems that homeowners are facing is that the values of the homes they are paying mortgages on are plummeting. DUH!!! This happens all the time for a number of reasons. It happened with me. I purchased a home almost twenty years ago and added two rooms , a garage, resided and reroofed and being handy with the help of relatives did most of it ourselves. In our market I would be hardpressed to get what I paid for it plus materials. You buy a home to live in not invest in. If the homeowners are employed adjust the payment down and extend the term where they can pay for it or tell them there is a bankruptcy court waiting for them.

Feb 18 08:26 AM

[a fat panda:]

You can say it again, and again, and still be wrong. Falling home prices are not the problem. They are a reflection of the problem - we have been living beyond our means and supporting the difference with debt. You are right up to the point where you lower interest rates - that is just giving heroin to the junkie.


On Feb 18 08:26 AM MJJP wrote:

> I've said this before and I will say it again and again as long as
> people are posting about real estate. One of the main reasons for
> the problems that homeowners are facing is that the values of the
> homes they are paying mortgages on are plummeting. DUH!!! This happens
> all the time for a number of reasons. It happened with me. I purchased
> a home almost twenty years ago and added two rooms , a garage, resided
> and reroofed and being handy with the help of relatives did most
> of it ourselves. In our market I would be hardpressed to get what
> I paid for it plus materials. You buy a home to live in not invest
> in. If the homeowners are employed adjust the payment down and extend
> the term where they can pay for it or tell them there is a bankruptcy
> court waiting for them.

Feb 18 09:27 AM

[John Polomny:]

My plan to solve the housing debacle. Let prices fall to the market clearing equilibrium price. Buyers who actually have money will buy houses. We have too much supply of houses and prices are still too high. The massive readjustment is painful but necessary if we are to get back on track. I have already talked with people that are stopping payment of their mortgages in anticipation of being bailed out by the government. Price supports always fail.

Feb 18 10:07 AM

[nana1:]

The simplest way to lower monthly payments is to extend amortization from 30 year to 40-50 years or more.
Also lower mortgae interest rate to 3.5% and allow people who are under-water to refinance with option to pay interest only if they choose. There should be no negative amortization.
The goal is to reduce monthly mortgage payment by 30-40%.
You can calculate this. Reduction like this is needed, people will be able to pay for mortgages and they will have some money to spend to move our economy.
There is always solution to problem.
People cheated on loan applications on so called stated income program- they bought houses they could not afford to pay.
Banks gave such loan due to poor underwriting standards, their ignored documentation about income and as result they drove themself into bankruptcies.
We the people who are working hard , should not pay for other people and banks mistakes.
Who should pay for this lower payments:
Answer:
Banks should modify mortgages with no re-application, all people who have mortgages should have lower interest.
FED gave banks. 50 discount rate and mortgage rate should be now 3.5%. Why this is not? Banks like JPMorgan, Wells Fargo Bank and,Bank of America with idiotic management are too gready.
These banks who drove our country into recession should be forced by government to refinance all mortgages to 3.5% as of today or face bunkruptcies.
There are a lot of banks that are solvent and they do not have such problem.
We should not worry if bank goes bunkrupt or people. We need this in our system to ged rid of the worse.
Now houses are affordable and people can afford to buy - first time home buyers and in addition to it there is Tax Credit -$8,000.00 waiting for them.

Feb 19 11:28 AM

[Smalltownba...:]

Are you a Congressman. I can't believe I actually read enough of that blather to make a comment. You are kidding. Why should you keep the profit when you haven't paid the interest. If you can't afford the home you lose it.

Feb 19 09:43 PM

[DuffBeer:]

All you gimme --freebie --help them-- help me -- I need people
Do you not believe that nothing is free ,it will have to be paid for
at some time.
Irresponsible spenders should be bailed out but not by fat panda , mjjp smalltown banker or me duffbeer !!!
Nana and Dan why don't you gather up all your money,your families money and all those that love using others money to bail out dead beats and YOU GUYS BAIL THEM OUT.
I have been there , I know what the bottom looks like ,feels like, sounds like, and on and on. A vcr movie and popcorn was a night out. I know you can get out of it by yourself if you want to but there is PAIN and one has to Sacrifice. Any liberal democrat would have no idea what those two words mean .
This I now can afford a good brew and it is time to go get one.
Cheers, DuffBeer

Feb 19 10:14 PM

[john69er:]

listen smart guy this mortgage problem has spread beyond people that bought at the peak in some areas lose of value is beyond 50% way beyond. The problem is that the banks are allowing short sales thus putting neighbors all over that have plenty of equity against my home. Thus forcing me to sell or pay for the rest of my life without owning. Regardless if you like it or not homes are investments not for living in. If you believe the later you are foolish as you will see it will be 2020 before they fix the real problem upside down mortgages that will continue short selling for years. Things in peoples lives change unless you are some deliverance people living in the mountains. People have job changes. Job losses, deaths in the family the variables are huge it's not clear cut and dry that people bought what they couldn't afford. You think prime mortgages are walking now because they can't afford it? Or that loss of jobs income and short sells and foreclosures auto industry and investment losses could have spread to people that could afford it. Use common sense this problem is bigger than you understand. Rate reduction will be the only thing to save this economy in the end the short sales will keep destroying housing values until they reduce the principal. Remember that I told you this. This new mod program is no more than an arm and will not fix property values and stop short sales. It may stop foreclosure but it won't stop short sales because values are still upside down. Now if you owned a home valued at 500k and owed that much than hey i can see but what if you owed 380 and your home was worth 500k and now its worth 230k because of the short sales. Whats the point in paying down something you can never pay off?? Homes have become investments the minute they were packaged and sold on wall street. That's a fact!!! They will always be investments and there is nothing you can say or do about it. You should want the banks to reduce the principal so it will stabilize the economy and force buyers into new homes and get people back to work instead of greedy dicks staying on the sidelines like vultures waiting to take away someones dreams through short sale or foreclosure. It's unfortunate but it needs to be done. Write em down banks so we can get this thing cooking again.


On Feb 18 08:26 AM MJJP wrote:

> I've said this before and I will say it again and again as long as
> people are posting about real estate. One of the main reasons for
> the problems that homeowners are facing is that the values of the
> homes they are paying mortgages on are plummeting. DUH!!! This happens
> all the time for a number of reasons. It happened with me. I purchased
> a home almost twenty years ago and added two rooms , a garage, resided
> and reroofed and being handy with the help of relatives did most
> of it ourselves. In our market I would be hardpressed to get what
> I paid for it plus materials. You buy a home to live in not invest
> in. If the homeowners are employed adjust the payment down and extend
> the term where they can pay for it or tell them there is a bankruptcy
> court waiting for them.

Aug 31 03:15 PM