Wednesday, September 24, 2008

Mortgage Meltdown

I don't feel like writing a lengthy treatise, but I have to say something about the mortgage crisis, since our political leadership doesn't seem to see what I think is an obvious technique to improve the situation. None of them will see this, probably, but at least I'll get it off my chest.

The Federal Government should pay off 2nd and 3rd mortgages up to 20% of the value of primary residence and take a 25% ownership of the property, if the 1st mortgage is a stable fixed-rate loan and this restructuring will enable the family to keep up with payments after the change. The valuation should be based on the valuation at the time of the last mortgage, not the current valuation.

The Fed is going to pump many billions of dollars into the mortgage crisis somehow. This method allows families to stay in their homes if they can afford it after the deal. They are lightly punished by losing slightly more home value than the percentage of financial assistance they receive. This punishment is appropriate because they bear responsibility for knowing what they could afford long term, and a deal that does not punish them is unfair to those who were more responsible with their finances. Yes, the homeowners were probably deceived by lenders pushing them into houses with payments larger than they could afford in the long term. Criminal charges should be pursued against lenders who misrepresented affordability to home buyers or misrepresented the quality of the loans to mortgage bundlers (for the mortgage resell market). This would minimize foreclosures, which will keep the maximum number of families in their homes and stabilize national home values as much as possible, contributing to a more rapid recovery of housing values than we'll otherwise have.

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