I saw an interesting segment on Fox and Friends this morning. I know, this isn't the hardest hitting news show on T.V. but once in a while they come up with something good.
John Geanakopolos, Economics professor at Yale University talked about how reducing interest rates for existing mortgages had little or no effect on the mousing crisis. His idea is that banks should lower the principle to incentivise homeowners to stay. In a nutshell, a home worth 160,000.00 is now worth 100,00.00. The home goes into foreclosure, takes 18 months or so to be sold again, is torn up and is a bight on the neighborhood. To top it off, the bank may sell the home for 40,000.00, if that.
His idea is to reduce the principle amount to 80,000.00. That gives the homeowner some equity and greater incentive to stay in the home or at least makes it sellable. The bank makes 40,000.00 more than they would have.
this is very simplistic and I've included a link to the full article.
While in principle I agree that it would have been a better move, I do have some reservations. I wouldn't want the government telling banks they have to do this. I'm fully for a free market and while it would be in the banks, as well as everyone elses, best interest to do this, it can't be forced.
Please give me your feedback.
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