Let's for a moment set aside the fact that the Democrats pushed through the laws that created the problems we are now facing in the housing market and the fact that BOTH Fannie Mae and Freddie Mac were run by former Clinton staffers. Let's also forget that it was the Democrats who fought ANY regulation of Fannie and Freddie by playing the race card! Let's forget for just a second that it was the Democrats who pushed through the $700 Billion bailout that had an additional $150 Billion in PORK attached to it. Let's also forget that it's the Democrats who now want to use the bailout money in ways it was never meant to be used, like bailing out the Auto Industry, while they refuse to reallocate the $25 Billion they already authorized in September "To help build more fuel efficient cars" in favor of an ADDITIONAL $25 Billion that they haven't the slightest clue what it will be used for other than maybe paying UAW members 95% of their pay to NOT WORK!
http://www.detnews.com/2005/autosinsider/0510/17/A01-351179.htm
So let's set all of that aside and examine something that NOBODY IN WASHINGTON will even so much as mention that could stabilize the housing market with the stroke of a pen!
Mortgage companies used teasers to get people who couldn't afford houses into their first home with "Low fixed rates" which when they began expiring in two years skyrocketed from 6% to in some cases 12% and 13%. Then when surprise surprise people could afford the LOAN SHARK RATES the banks began to foreclose on people. This put a glut of vacant homes on the market, which tipped the scales of supply and demand.
Once supply outweighed demand, housing prices began to fall, which left people owing more than their home was worth which prevented them from being able to refinance. This coupled with the fact that most of these people never put a down payment and were holding both a first and second mortgage, ensured that they would either have to pay the loan shark rates or lose their homes.
Now I am NOT excusing the fact that these folks took part in this and should have understood what they were signing, but the fact is many of these folks are not very well educated and were told things like "Don't worry, you can refinance before the rates go up".
So now that the banks are sitting on all of these "Bad loans" that they KNEW would go bad as soon as rates went up, they are crying foul and getting BILLIONS from taxpayers!
You see the banks don't just want to be repaid, they want to be repaid at their LOAN SHARK RATES, which is why they are refusing to work with people and continue to foreclose on folks or shove them off on Government programs rather than help solve the problem themselves! Pandering by Democrats and GREED by Banks got us into this mess in the first place and it's keeping the problem alive!
So like always, rather than just articulating the problem, (Like anyone can do), I also have a solution! I have posted this solution before, but I feel it is worth a repost because it seems nobody in Washington is LISTENING! So what I would encourage you to do is to send this article as a link to your Congressman and Senator, provided you believe it is a good solution. I also invite those of you that see a hole in the solution to poke the hole and let me know.
These apply to ALL Government insured or guaranteed loans and ALL loans held by banks who have received Government bailout funds.
1. Effective immediately anyone who is behind on their mortgage payment will have all payments they are late on rolled to the end of their loan.
2. Pass a law that states that EVERYONE who shows a history over the past year of being late on their Mortgage payments will AUTOMATICALLY have their rate adjusted to the PRIME RATE with ZERO POINTS and NO FEE to make the adjustment. This rate will be fixed for 30 years!
3. If someone was foreclosed on and their house is still vacant they would be allowed to return to their home and qualify under the same deal provided they could prove they can afford it under the new structure.
Implementation of the first two will fix 90% of the problems out there by catching people up and lowering their rates to return them to either a payment that they were able to afford or a lower payment then what they originally had. This would also fill many vacant homes that present a total loss on the bank sheets. If this doesn't solve the problem for a person or family, they will move to the following steps.
3. On a case by case basis it will be determined if a particular home owner would be financially able to afford their house at 80% of it's value. If it is determined that they can in fact afford the home at this lowered loan value with the lowered interest rates, the Government will purchase 15% of the home value and the mortgage company or bank will write off 5%. However, the home owner MUST occupy the home for five years, if it is sold before that time the Government gets their share back from the sale. While the home owner will not have to directly pay back the portion the Government owns, they will relinquish ALL tax returns and rebates until the Government has collected 100% of the 15% they took control of.
This will solve many of the remaining people's problems, but for those it is determined cannot meet this criteria, they will move to the next step.
4. People in this category will qualify for a "home swap" by determining what that particular home owner can afford and they will be given a selection of homes that the bank is sitting on that have been foreclosed on and remain vacant. They will then choose one of the available homes on a first come first served basis and be allowed to move into that home with a 30 year fixed rate at prime with no points.
Almost every homeowner in trouble would be able to benefit from the steps I have put forth, but if this didn't solve their problem they would have to be foreclosed on and the normal course of action would commence immediately.
My plan would stabilize the underlying problem and provide a long term fix that would send a strong message to those who would attempt to take advantage of people because of their greed. It would also not be a hand out, but a hand up! It is rooted in both Conservatism and reality. But with a Democrat controlled House and Senate along with Barry Obama taking office, we will NEVER see a solution that actually makes sense implemented! No it will be all "Good Intentions" and "Class Warfare" and band-aids on the symptoms rather than fixing the problems! Just like the New Deal and the War on Poverty, it will be the creation of mammoth bureaucracies and Government hand outs which do nothing except keep a problem alive for political gain!