I'm by no means and economist or a politician, however, I'm watching Glenn Beck tonight trying to get my mind around the Senate's proposed bailout program. They just went over several different "add on" features which ranged from loans for Rum distillers in the Virgin Islands to tax credits for race track owners! What does any of that have to do with the current mortgage/ banking crisis?
Within 30 minutes, I have put together my own "bailout" program.
1. Immediately end all foreclosures on owner occupied homes. All around the country, home values are upside down. Right now in most of New Haven County, CT, there are over 9 months worth of inventory for sale. That means, if no other home owners attempt to sell their homes, it will take 9 months to sell all of the homes currently for sale. If you add all of the pending foreclosures to the inventory, the saturated market will truly be flooded. The inventory must be stabilized.
1a. Investment properties and new construction need some sort of solution as well, since these were higher risk and business loans in the first place, I am not sure what route to take... I'll have to think about this for longer than 30 minutes.
2. Rather than lending money to banks who wrote bad mortgages, the government needs to set-up a government backed mortgage program to lend directly to homeowners. These loans (Bailout loans or BL for short) should not be written by mortgage brokers, the government needs to put together an infrastructure of employees, like social security, or the IRS. Average homeowners looking to refinance, or new home buyers will not qualify for these loans. The BL loans should only be used for owners who are currently in default on their owner occupied homes. There will be no closing costs for these loans (no broker fees since these are government employees, no attorney fees since every mortgage will be the same and there will be no hidden clauses, no recording fees as each town that the mortgages are written in will have to take a loss on the recording fees, no title insurance policies since it is foolish for people to have purchased a title insurance policy when they purchase a house and then again when the refi).
3. The only qualifying that has to be done for a BL is to be in pending foreclosure. Everyone who apples will receive these loans, this means that it will take less time and therefore less cost to the government to implement this program. Granted, some of the BL loans will default and be foreclosed on, but hopefully due to item 4, there will be fewer foreclosures than there currently are.
4. Banks which are foreclosing on loans must accept a BL as a full payoff at the current appraised value of the home (the bank must provide the appraisal at their cost). Since there will be no negotiation or options for the bank, there will also be no need for large loss mitigation departments or large legal fees to start and stop foreclosure proceedings. This will mean less spending by the banks.
5. If a homeowner of a BL sells their home within the first 3 years, then the government will receive 25% of the sale proceeds. Half of the 25% proceeds will be released to the government and the other half will go back to the bank.
Granted, my bailout package only took 30 minutes to think up and 15 minutes to jot down, but I think it has a lot more value that what is being considered by Congress. The government will be doing several things:
1. Saving the average citizen
2. Providing liquid cash to the banks which are currently being pulled down by the bad loans they wrote.
3. Increasing revenues since they will actually make money on the loans they write, rather than throwing money away on Wall St.
4. Protect the housing market and let it recover on its own by limiting the number of homes for sale.
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