Friday, August 1, 2008

The Chenkin Mortgage Crisis Solution

As of this writing, over 10 million Americans own homes which are mortgaged for more than their appraised value; They are at risk of losing their homes and (with impaired credit, etc.) may be "out on the street" or worse (Living in tents).

The banks, who foreclose and sell on these properties, frequently take 50% of the value of the mortgage as a "Short Sale" price. This is because the property either is vacant, likely in disrepair, or the former owners need to be evicted, or worse. These houses are a blight on our neighborhoods, attracting vandals, vagrants, and crime. The speculators who buy forclosed houses frequently rent them out or hold them, sometimes vacant, until the market improves, not adding a lot of value to the community.

These discounted homes reduce the comparable values of the other homes in the neighborhood, and force homeowners who are not in foreclosure to accept less for their homes, or wait until the market "recovers". With Sub-prime loans adjusting through 2010, There will be plenty more "at-risk" homes added to the market for the next two and a half years.

Government Bail-outs, like the Bear Stearns event, DO NOT HELP THE HOMEOWNERS IN TROUBLE. They are a financial means to keep the banks afloat, usually with Federal guarrantees.

Here is my solution, and reasoning:

1. Have the banks "write-down", or discount the at-risk mortgages to 50% of their face value - before a Short-Sale or foreclosure. The banks created the artificial runup in home values, with relaxed rules, predatory lending, loosely regulated mortgage brokers, and restrictive mortgage terms. At 50% of the mortgage value, Most homeowners can keep their property, Make mortgage, Tax, and Insurance payments, and maintain the integrity of the family and neighborhood. Remember, a short sale may only give the bank 50% of the mortgage anyway, and take many months, paperwork, and angst.

2. Have specific rules in place to prevent homeowners and the banks using the plan for unjust enrichment or speculation; This is not intended to be a solution for over-leveraged investors with many properties in foreclosure.

3. Put more programs in place for Jobs, Economic development, and community development. People with reduced mortgages can be required to do specific community service, depending on their situation.

4. Require life insurance (not mortgage insurance or PMI) for the borrowers, to pay off the debt and free the property for the children/heirs of the borrowers.

This is a proposal to get the mortgages Performing again, keep people in their homes, and preserve community values. If you agree, Please pass this on to your elected officials and friends, and urge them to help your neighbors stay your neighbors, to preserve your property values.
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