Sunday, September 28, 2008

Mortgage Meltdown, Addendum

Here's another idea that seems obvious I forgot to put in the previous article.

It's normal, when a homeowner defaults on a mortgage, that the lender evicts the homeowner and sells the house. Normally, however, there's not a tremendous glut of houses for sale at very high prices, so houses are sitting on the market for very long periods of time. For example, the house at 100 Main Street, the owner gets evicted, and the house sits empty for a year before the bank can get it sold. Say the original mortgage amount was $2400 a month, so the total revenue to the mortgage company was $28,800 for one year. Instead the bank's revenue for that period of time is $0.

Mortgage companies, and especially mortgages backed by FHA, Fanny Mae, and Freddie Mac, instead of evicting homeowners, ought to try to work out a deal that lets the homeowner stay in the house and pay some amount of rent. Suppose the homeowner can pay half the amount they were paying in mortgage payments. If they can pay half, then the lenders' revenue will be $14,400 for the year, instead of $0. They can still try to sell it while it's occupied, but they also have the option of selling it as a rental unit that is already rented.

:typed and edited by Promise Lambert

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