We all know what happened. The big scary mortgage companies forced poor little citizens into buying houses they couldn’t afford. They actually held these people at gunpoint and made them sign up for ridiculous lending schemes. Everyone knows that prospective homeowners are incapable of reading a contract. With so many prospective homeowners suddenly qualified due to creative financing, the evil house flippers came on the scene. There is even a show about those people. All of the activity in the housing market artificially inflated real estate values across the country. And then a nine year old boy picked up the balloon and stretched the valve simultaneously deflating it and making a squeaky fart sound.
The question is, what do we do about it? The liberals think a bail out is in order. Fantastic! Let’s let the government have an even better grip on their quest to put a stranglehold on the free market. Brilliant. With everyone working together towards a common goal we’ll be communist in no time. Of course they aren’t taking the responsible segment of the population into account. Even though I did not get into a mortgage beyond my means, it is apparently my responsibility. Ok, I’ll bite, but what’s in it for me?
Enter THE PLAN (It’s all caps and bolded because it’s that important and great.)
First, the mortgage company reviews the foreclosure risk accounts. Knowing full well that they are going to lose money due to the ever dropping house values, they decide what amount they are willing to just write off the top. If they are smart, this will leave a principle balance that is significantly less than the current market value of the home. They will take this information and lock it away. They will also review the credit worthy mortgage holders and place them on a special capitalist pedestal.
Are you still following along? I would suggest that you take notes, but this is a blog, you can reread for details and there won’t be a test. Well there might be, but it would be open book.
The mortgage company then asks the credit worthy mortgage holders to gather at the round table where they will present an opportunity to rescue the damsel in distress and make a profit in the process.
(Oh yes my Capitalist friends, there is profit to be made in the private sector-but we’ll get into the actual opportunity in a minute.)
The mortgage company will also have a sit-down with the foreclosure risk mortgage holders. Remember that this is a group of people for whom the dream of homeownership is shattering. Not only will they no longer be able to call themselves homeowners, but they will have to uproot their families from a community and find a new place to live. The flood of displaced homeowners has already driven up rental rates in many areas so these people are very much caught in a desperate situation. But the mortgage company has a solution. These people will still have to relinquish ownership of their home, but they will not have to move out. They can continue to appear to be keeping up with the Joneses.
“How is this possible?” they cry from their place of sackcloth and ashes and immediately agree. Appearances are important after all.
Enter the League of Responsible Homeowners. Having been given a credit history, income statement, and newly adjusted loan balance, these knights in shining bank accounts will have worked up an offer. They will take on the mortgage and become landlord of the property. The distressed mortgage holder will become the tenant of the house they already live in. The responsible homeowners will have already decided the terms including monthly rent payment and payoff terms if applicable. They will also have decided which troubled properties they are willing to take on. The foreclosure risk homeowners will then decide which offer works best for them.
Everyone wins and the government doesn’t need to get involved.
The mortgage company wins because they get to unload a credit risk. Sure they take a loss, but it is likely less than they would have lost in a foreclosure. They are now carrying a mortgage for the property with a proven mortgage holder. Their risk is slim because even if the whole thing fails, they can always foreclose on the property later.
The new landlord wins because now they have a new income source. They owe less on the property than it is worth so they have instant equity as well. The former owners are likely to be good renters because they will continue to treat the house as if it were their own. If they have offered the tenant a buyout option, they are even more likely to take good care of the house. Worst case scenario, the renter defaults and is evicted. The new landlord still owns the property and can rent it out or sell it. And they can ride away on their white stallion, banner held high.
The former homeowner wins because they don’t have to move. Their kids stay in the same schools, and the Joneses never know there was a problem. The months of payments that they have missed have been forgiven, and they are now under a rental contract rather than a mortgage. If they signed up for a buyout option, they may even own it again once they get back on their feet. And since they are now free from the mortgage, they can move out with dignity if they don’t.
The market wins too. Yes, the cost correction in the real estate market is inevitable, but this scenario will take it back to the historical ebb and flow rather than a crash. Historically, real estate is a good investment. Housing values drop when the market is flooded with more homes than homeowners. My solution avoids this because these homes don’t go on the market, they stay occupied. Also the adjacent houses maintain a reasonable value because they aren’t standing beside a vacant home in disrepair.
Even the current renters win. Those that have stayed out of the market because it wasn’t the right time for them to buy a house before the prices spiked. Since this prevents a sudden influx of new renters, it keeps the rent prices fair and competitive. Not to mention the benefits for all taxpayers.
Taxpayers win because they are not forced to pay for someone else’s mistakes. No one wins when you just give handouts. Someone pays for them and the person receiving them is not served. Now if the feds will just get out of the way, we can solve this problem ourselves.