A proposal for the mortgage crisis
A proposal for acquring distressed mortgages Basic ideaHomeowners facing foreclosure get to have their loan principal renegotiated to an appraised value. However, the loan owner get a lien worth the difference between this appraised value and the original loan amount.
This lien gives them first right on the portion of revenue from a future sale of the house that is above the appraised value.
You could tweak this a number of ways.
- If the loan amount is $400k, and the appraised value is $350k, the loan principal is reduced to $350k.
If in t years the homeowner sells the house for $380k, the homeowner gets $350k (minus whatever is owed on the principal), and the lien holder gets $30k.
The idea is to help the na´ve, but not necessarily duplicitous, dopes who bought these houses in the first place. And to slow down overly large drop in housing prices due to a bump in supply caused by foreclosures. But in a way that doesn't punish the prudent renters who have been waiting for prices to drop. And also giving the banks (or mortgage holders) some hope of recovery
- the lien should probably be treated like a loan, so it increases at the rate of interest (thus, in t years the lien would be worth 50 *r^t k$, where r is the interest rate (i.e. 1.06).
- The lien would still be attached to the house after sale, so the new owners would be responsible for it, typically minus the amount over the sale price (ie. the $350k) that they paid (ie.; assuming r=0, after applying $30k to the lien, the new owners would have a $20k lien) *
- The homeowner can always pay down the lien as desired.
- To encourage the original homeowners not to trash the place, the loan owner could rebate a portion of this "profit" back to the original homeowner. Say, 20%?
- The loan holder may end up being the feds, or whoever the feds sell it to. Or, the liens could be seperate from the loan owner. So if a speculator wants to bet on rising prices (and the homeowner eventually selling), the loan owner could recover some of their losses immediately.