I have a client that wrote me the following letter and I think this is a really good idea for the upcoming problem that many people will be facing in the very near future if not already.  These people are not dead beats but people who got into their homes with 100% financing. In the last 2 to 5 years. There are thousands of them out there and we the people need to come up with a win win situation. I think this client my have it and that is why I started this blog.  Please read the following letter:

I do not know if you can help but maybe there is something the government can do to help people like myself that could be in a bad situation when their ARM starts to adjust.  I have excellent credit and my husband and I make enough money to make a payment on our house if it were at the same rate it is now.  We are paying interest only but we could make a principal and interest payment at today's rates.  The problem is we cannot refinance our home because of the pre-payment penalty and the fact that the house may not be worth what we owe on it. We took out a 100% loan, 80% on the first loan and 20% on the second loan. I do not want to default on my loan but when it adjusts I may have no choice.  I would continue to pay my house payment even though my house is not worth what I owe in hopes that someday I can pay down the note or maybe the value will catch up with the loan amount. My husband and I want to someday pay off this house and live until we pass away.  We never want to move again.

What I propose is that the note holders extend the fixed rate term of the note for 5 to 10 years or so until the market is better and then adjust or refinance the homes to a fixed rate. Either that or just turn the current loan into a 30 year fixed rate note right now. 

The note holder will loose the interest that they may have made if the note adjusted and the people who owe the mortgage note can keep paying there payment. However, if the people who owe the note cannot pay the adjusted rate and they know that they cannot and the banks will not or cannot work with them because they only service the loan they do not own the note. The people who stay in their house until they loose their house might not  unable to rent because their credit is destroyed by the foreclosure. 

These same people could see the writing on the wall and choose to  just rent a home before there credit gets bad and move out of the home that they are going to lose  and send the keys to the bank who is servicing the loan.  The note holder will loose a lot of money when this happens. The note holder will still have to go through the expense of foreclosing on the house and then selling the house in a very down market. The not holder in this scenario will lose money maybe a lot of money.  This is happening now all over the United States Today.

The credit of the home owner of course will get bad but if they pay their rent on time and keep paying their other bills on time their credit will get better over time and someday when the housing market calms down and the foreclosure falls off of their credit they will be able to buy another house.

This scenario could all be stopped by extending the current payment arrangements until the market picks up enough for the people to refi their house or the income goes up enough to pay the adjustable after it adjusts. The note holder would earn the current interest on their money and not have to reposes the house in a market where so many homes are being repossessed and cannot be sold.  This would bail out both the buyer and the note holder from a bad situation. The second note holders are the ones that will be hurt most but the first holders are not in that great of shape given how the prices are going down in some parts of the country. A piece of something is better than 100% of nothing.

There will still be a lot of repossessions due to people who have lost their jobs because of the Real Estate and Mortgage Industries turn down. Thousands of people are loosing their jobs because of the falling housing market and the tightening of the mortgage guidelines. This plan could help those who can still make their house payments because they are still employed.  Helping the people who have the means to pay their current mortgage will cut down on the over all number of foreclosures. 

The problem with the FHA bill that congress just passed is that it doesn't address the needs of the people whose home is worth less than they owe on it.  That is in the position to continue making the current payments as they are, even though they owe more than the house is currently worth. If those people do not have enough in savings to pay the difference between what FHA will loan on their home and what they owe on the house currently they will loose their homes.

I think this is a good proposal however to deal with the situation I have addressed.  I have no idea how to pitch it, and to whom can I pitch this idea.  I would go to the banks but most of the banks that you pay your payment to only service the loans they do not own the loans.  Do you or anybody know where I can go to spread my idea so it will be taken under consideration?  I have talked to a few people in the mortgage market industry and they think it is a good idea.  Can someone help me