Forum Post: A plan for the 99% to resolve the foreclosure crisis

A solution to the mortgage and foreclosure crisis is surprisingly simple. First, give each financial institution with bad mortgages ninety days to separate out, on paper, the good loans from the bad loans. For the next three months, a select group of judges, attorneys, trustees, appraisers, accountants, congressmen, and other professionals familiar with bankruptcy, banking methods, and real property values will meet with the banks’ representatives to put a value on each real property which is the subject of a bad mortgage. This would be a current fair market value, not the value the banks put on the properties when they made the loans. So there might be a home valued at $50,000.00 on which the bank is owed $90,000.00, for example.

The government would then purchase each property from each bank that is the subject of a bad mortgage, but for only an amount equal to 30% of the fair market value. The difference (the other 70%) will be taken as a loss by the banks, but would still be consistent with the loss each bank would take in a foreclosure, because they would not suffer the loss of costs of foreclosure and would not have to conduct foreclosure sales nor worry about whether or not any of the properties are purchased at the foreclosure sales. That would be all of the money paid to the banks; they would receive nothing more, and it would not thereafter require any oversight of how the banks use the funds.

The payout would cost only a fraction of what has been done, and the government would save an additional fortune in not having to keep track of what the banks would choose to do with that money. Restrictions in the form of new legislation will need to be passed for better oversight over how financial institutions invest their money and how they take bonuses and retirement packages and the like, but that should be dealt with in an efficient manner separate from this plan.

The government would not go into the business of making new mortgages, while tasked with dealing with the newly purchased mortgages. Rather, the government would rewrite every purchased mortgage with each homeowner for the amount the government paid for each property. The new mortgages to the homeowners would be at a fixed 6% rate of interest, and each homeowner would provide tax documents from the past three years to establish a monthly payment each could live with.

The monthly payment a homeowner could afford would determine the length of the mortgage note. Any that would have to go beyond 40 years would not be permitted to participate. Thousands of homeowners who would lose their homes under the current methods, would be able to keep their homes under this plan, and the agreements could be set up to be direct deductions from checking accounts on a monthly basis.

With this plan, Americans keep their homes; Banks receive funds they can immediately utilize without themselves having to deal with bad mortgages, illogical restrictions, or confusing oversight for the use of the funds; the government begins receiving their money back almost immediately; and there is as near a guarantee of complete payback plus 6% interest that there could possibly be in any alternative plan. Once implemented, thousands of homeowners would immediately start paying off their mortgages back to the government, at the 6% fixed rate. Funds earned through the interest charged will fund the costs of employing people to manage this solution. Foreclosure signs will be removed from lawns by the thousands, and neighborhoods will have a chance to spring back to legitimate property values.

Banks would not be entitled to funds for the purchase of any properties on which the banks do not have necessary paperwork to document and transfer properly to the government. That would be a consequence of the banks’ failures to maintain proper paper, and the owners of such properties would then be permitted to keep their properties free of any mortgage in that instance. Unfortunately, such instances will most likely have to be litigated, but the government would not be involved in that litigation. The failure to maintain proper records is the banks’ error, and that is true whether or not the mortgages were bundled with others.

This plan is an actual solution. This plan will work, and it should be relatively simple to implement and could be implemented immediately. This process will take most homes that are currently in foreclosure out of foreclosure, will take foreclosure and for-sale signs due to impending foreclosures off of the lawns of homes throughout the United States, and will cure the housing crisis.