My Solution to the Mortgage Mess

With the $700 Billion+ Rescue (don't call it a Bailout) package being passed by Congress and signed into law by Bush, not a whole lot has been said about how to solve one of the biggest issues- the Mortgage crisis.

At the October 7th debate McCain proposed that the government buy up all the foreclosed loans in America and renegotiate the terms at the new home value. I have a huge problem with this. You're basically taking tax payer money and helping those people who were so greedy, they bought homes they couldn't afford [these may have been talked into thinking it was affordable, but they still lacked the ability to understand what is affordable and what isn't]. People who have been waiting to buy until it was affordable, on the other hand, get screwed for having good judgement. Also, this does nothing to bring up home values (root cause of the problem) and does nothing to stimulate growth in the housing sector. All you're doing is covering the mess with new carpet. That shit is still gonna stink.

[As an aside: I think the Rescue package was the only thing that could've been done as an attempt to help out the economy. If done correctly, the money injected into the system should help companies stay afloat until the "fundamentals of the economy" are corrected. I should note, however, that I've been predicting a prolonged recession due to over-inflated values of companies and stock. As evidenced by today's stock values, I think we're nearing the point where companies are correctly valued. -- Great time to play the stock market]


Here is my solution:

Instead of re-valuing failing mortgages, I think that some of the $700B should be used to insure mortgage loan interest rates so that homeowners are paying roughly 3% or less on their loan; also, only offering these insured rates on 30-yr fixed mortgages will keep mortgage payments the same throughout the life of the loan. Make sure these loans are only offered to people who are trying to realize the "American Dream" of owning a home, and not trying to line their pockets with a rental property, by enforcing a stipulation that the property is Owner-Occupied. Obviously, strict oversight would be required.

I believe this could level off home values, and possibly even bring them up. Spending in the housing sector would be stimulated with new buyers who could more easily afford a home at 3% interest [legitimately].

Downfalls:
Honestly, I can't think of many. I'm a little naive and think this plan could really work. Sure, people wouldn't be able to write-off as much money on their taxes, but that's not what this is all about. It's about putting people into affordable homes. This will also be an expensive proposition, but even half of the rescue package is very significant and would easily cover the high costs.


As for the credit side of this global issue, I think the entire system should be overhauled. With the money available, a brand new 21st century financial system can be created.