A couple of years ago lenders were offering "interest only" loans where customers could put off paying principal and interest for a few years and pay interest only. It's true that this caused some of the problem that we are now in, but it could also be the solution to get us out. It's like a vaccine. If home owners are facing foreclosure they often don't pay their mortgage payments for at least 6 months while still living in the house. Therefore the banks are receiving no payments at all during that time. If banks would allow distressed properties to extend the mortgage for 3-5 years and allow the home owners to stay in their houses while paying just interest, at least that would be some revenue. In 3-5 years, the housing crisis will have turned around because there will be fewer and fewer foreclosures hitting the market during that time. Prices could even go up, which may allow homeowners to refinance in 5 years and keep their home, or the short sale option will be more plausible because homeowners will be just $40,000 or $50,000 upside down instead of $100,000 to $200,000 upside down. Many houses have lost 50% of their value in such a short amount of time here in California, so we may not see another 50% gain for many years to come. But at least these houses will have recovered some of that value in the 5 years it takes to reduce the foreclosure inventory and return to a somewhat "normal" market again.

This seems like a much better idea than allowing taxpayers to bail-out loans at their current value and refinance at today's housing prices. That's a lose lose proposal for everyone.

Any opinions?

For more real estate info: www.homerealtymanual.com