Steps Needed to Save Home-Ownership

This needs to go viral. Please help by forwarding to everyone you know. We all must demand quick action in order to forestall a major financial melt-down. Our government is resisting trying to solve this problem. The current mortgage mess has the potential to take our banking system down totally and to stop almost all economic activity in the housing sector.

There are four different groups which need attention to solve the problem. They are the homeowners, the banks, the investors who purchased the Mortgage Backed Securities, and the County governments. Here's what we think is necessary to solve the issue.

The US needs to immediately declare a mortgage payment moratorium for the next 12 months. The homeowners will pay no principal or interest, but will pay enough to ensure their taxes and insurance are paid. This will give all parties time to perform the required actions to reset the system. The money that the homeowners retain over that 12 months mostly will go back into circulation faster than it would if it were thrown into the black hole that the banks have become. All foreclosure actions and short-sales and normal, non-distressed sales will stop immediately. Sales can resume on an individual basis as soon as the homeowner has reached the end of the process outlined below.

As part of this, all credit reports will be reset. Foreclosure actions and short-sales will be removed from consideration. Everyone will get a clean credit report and only derogatory filings made in the future will be considered. The credit card companies and other creditors will have to immediately refile derogatory statements. This will lower the credit scores of people whose actions indicate their scores should be lower while leaving the already foreclosed people with a reset score. Credit scores will soon return to a normal distribution across the population. Mortgage related derogatory statements will be stopped for the entire 12 month period and only allowed to be reinstated on new credit problems after the 12 month period has expired.

The people who have been foreclosed upon already will have to give up any hope of recourse other than having their credit record expunged and no longer being held responsible for the foreclosure debt - they will all get a no-recourse letter from the foreclosing bank.

It's likely that many homeowners will remain unaware of the steps they need to take, so the Realtors should be made responsible for handling the steps for every house in the country. The Realtor community represents a large group of people who already know about selling houses and arranging for titlework. The Realtors may charge no more than $100/house to handle the simple steps necessary.

Not every homeowner has a mortgage which has been sold and become part of the MBS mess. Some own free and clear. These people need take no action and can proceed to sell in a normal fashion, if desired.

Some homeowners have private loans or portfolio loans where they know who actually holds the title and has the standing to foreclose. These people need to make sure that their titles are in order. This also applies to homeowners who have mortgages which have been sold. In order to start this process, the Realtors will advertise their service to the homeowners and when hired to proceed, they will file a notice with the local County recorder that gives any and all mortgage holders 60 days to prove to the Realtor and homeowner that they hold a valid title with no clouds on the title. Once the title is no longer in doubt, these homeowners can proceed to sell in a normal fashion.

All banks will immediately make a web-page available which will allow the Realtors to file a demand-to-produce-clear-title notice. The banks will process these notices with diligence. If the original title can be produced and if it has an unbroken chain of title, the bank then has standing to enforce the mortgage and no further action need be taken. Those homeowners are then free to sell in a normal fashion.

If the title is lost or has a broken chain of title, the bank will immediately issue a new mortgage to the borrower. This new mortgage will be for 75% of the current county assessed value of the property and will be fixed at 4% interest for 30 years. Servicing on this mortgage must stay with the originating bank and in no event is a vehicle such as MERS to be used in place of proper recording with local governments.

The new loan will be closed at a title company arranged for by the Realtor which will issue title insurance at a cost of no more than $100. All parties will sign a document which certifies that the chain of title is clear as of the day of closing. The new mortgage will be recorded by the local County recorder and a reasonable fee as specified by local law will be charged. This will, in part, compensate the Counties for the loss of the recording fees they missed out on when the banks transferred titles using MERS as the recording agency. The total cost to the homeowner will be $100 for the Realtor, $100 for the title insurance, and the recording fee to the County.

This process will force the banks to participate in part of the loss that the homeowners have already sustained due to the decline in value created by the sub-prime crisis and by the missuse of Mortgage Backed Securities in general. Finally, the banks must immediately package the new mortgages up into tranches and provide them as substitutes to the investors who originally purchased the Mortgage Backed Securities. The investors should receive securities which are worth a specific fraction of the value of the original security. This will cover part of the investors losses while forcing them to also participate in the overall losses of the housing sector.

Our solution isn't totally complete, but a series of steps such as these should quickly move the system back to a semblance of normal. Our country cannot continue to proceed with the banking and housing sectors in such a huge disarray. The current administration must take sensible action quickly.