So Obama proposed a new solution today and half of the people are angry and the other half think it doesn't go far enough. Here is my solution: Feel free to poke holes in it.
What are the fundamental problems of the housing crisis?
Cause: Adjustable mortgages or ARM's resetting.
Effect: Mortgages that have exceed the borrower's ability to cover the monthly mortgage.
Solution: Allow anyone (not just people in trouble to refinance into low (and by low I mean 3-4%) mortgages. Make the mortgage binding for 30 years. Meaning once you have a new mortgage you can only re-negotiate if it causes the mortgage amount to go down, not up.
Solution: Regulate the crap out of mortgage companies. Clearly set guidelines that do not allow the banks to charge hidden fees or raise the cost of the mortgage.
Cause: Foreclosure's
Effect: Entire neighborhoods are getting wiped out by foreclosures. Crime is becoming a problem and people are losing their homes.
Solution: Allow a national wide freeze on foreclosures for 3 months. You as a homeowner have three months to work it out with the lender.
Solution: Allow a grace period of 6 months at anytime in the loan for all homeowners. Kind of like what is in student loans at the moment. After 9/11 I was able to take a break from my student loans because I lived in New York. The principal didn't go down but I got an interest free period while I tried to get a job. This grace period can only be taken once during the life of the loan (twice in really rare circumstances) so be careful with what you choose.
Cause: Falling prices
Solution: Reduce principals for those who can't afford the mortgage to whatever the current appraised value is
THERE IS A CATCH.
- When you sell your house, you will only recuperate the reduced principal amount and some of the interest payments back. (Maybe also something for inflation) Anything beyond that (the profit) goes into a government pot that is used to create more affordable housing (or some other program like that).
Solution: If the above does not sound appealing, I'm giving a onetime deal to walk away. Had over the keys. The credit agencies will have to create a special category that denotes you walked away but your credit score will not be affect and it will disappear after 5 years. (Shorter time than a foreclosure).
Solution: Require 20% down on all housing purchases (No exceptions!)
So what do you think? What are the holes? Who gets screwed besides the banks? By the way, I'm a disgruntled renter who is disgusted by how much the housing bubble went up but who is realistic to know that I need to help out others if I ever want to get on the ladder.