Where there is a will there is a way and a simple solution to the foreclosure crisis can be chalked out. During the last six months the economy has taken a turn for the worse and the bailout of financial houses and some industrial units have not shown any positive results.
The recent $787 billion package meant to stimulate the economy is dotted with giveaways on various pet projects of politicians. The taxpayers however will have to foot the expenses without being the least convinced that the plan will work.
There is a simple plan that will attack the problem at its roots and this has a better chance to deliver the goods.
Some have proposed that the toxic assets should be bought from the financial bodies so that the can remove them from their balance sheets. Instead of doing that the focus should be on the housing crisis – the primary reason for the triggering of the financial mayhem. The solution is simple – fix the mortgage mess and the financial crisis will end.
Suppose the original price of a house at the time of purchase was $300,000 and the down payment was 10% – $30,000. The mortgage taken from the bank was $270,000. Today the house owner cannot continue with mortgage payments and is facing foreclosure. A solution would be for the federal government to buy the house from the bank by paying two thirds of the original purchase price – in this case $200,000. The federal government would then become the owner of the property. Now it would charge the local government or municipality with the task of managing the house The onus would be on the municipality to either hire qualified people to manage the said property or to subcontract it out to a realtor of that area.
It would amount to the house owner losing the down payment of $30,000 together with any equity that might have built up on it during that time of ownership. The bank suffers a loss – a percentage on the loan given originally ($70,000) less any equity given to the bank by the owner. The bank instead of suffering nil gets something – $200,000 and the municipality notes the sale of the house at the new price of $220,000.
At this juncture there is hope for the previous owner to buy back the house from the federal government for a down payment amounting to $20,000 in addition to a mortgage of $220,000 (being held by the feds) at a rate of 4% to 5% that is fixed.
I woke up in the middle of the night and started reading this. :) :)