Monday, March 02, 2009

How to solve the housing mess in 2 easy steps and one year

This solution will preserve homeownership, fix toxic assets, and even stimulate the economy.

1. A one-year mortgage holiday for everyone:
  • No payments required for one year (except for escrow for taxes and insurance).
  • No foreclosures or late fees.
  • No interest accumulation.
  • Homeowners can optionally continue paying to catch up on late payments if they so desire.
2. At the end of the one year holiday, refinance the entire housing market:
  • 30-yr fixed at 2% for previous fixed-rate mortgages.
  • 30-yr fixed at 3% for previous ARMs.
  • 30-yr fixed at 2.5% for all new purchases.
  • All fees waived.
  • All homes reappraised for the current market.
  • No cashing out of equity, if you have any.
  • No negative impact to credit ratings.
  • No addition to or deduction from "income" of the difference in mortgage valuations or costs.
Everybody wins:
  • The banks still get their money and can rewrite toxic assets into good ones.
  • The foolish ARM homeowners get a real shot at keeping their homes--even though they really don't deserve it.
  • The wise fixed-rate homeowners like me get a break in their rate and a proper reward for being smart.
  • The net savings will keep people from drowning in other debt since it gives them a shot to pay it off, or deal with other expenses, which can stimulate the economy.
  • New homebuyers get a very good rate to buy.

Extend this to credit card debt and then we're really getting somewhere! Of course, the cards would have to be frozen on the use side as well, which could hinder things some.

The only obstacle is an obstinate Congress.

Of course, this makes sense, even if it is government intervention in the market, which is why it will never happen...

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