Here’s a thought: Why don’t we also help out some homeowners? Like those who bought a house within the past three years, only to find out that they own more than their home’s worth?
Here’s my idea on helping them: Have people come to the government (preferably the homeowners or the banks) to have their loans looked at. Have the house and lot appraised and see what the house would sell at right now. Have the bank then renegotiate with the home”owners” (remember, the deed is with the bank) with the new (low) rate and the new worth. Once the details are agreed upon, the government would cover the difference between the two loans, so that the bank doesn’t lose any money on the renegotiation.
The homeowner would benefit because of a lower loan (on what the house was worth, not it’s inflated worth of two years ago), the bank would benefit because they wouldn’t lose any money and they’d keep a good customer relationship, the local government would keep a resident and his/her taxes in place, and the feds would benefit all parties directly.
Now there would be drawbacks. The local governemnts (city, county, school, township and even state) would lose immediate tax income from lowered property values, and the bank would lose potential profit (though not principle) from the immediate payment of principal. They may also suffer from a slightly lower level of income from the house (from lowered payments, if the residents decide to refi at 30 years).
Plus you’d have to make sure you weren’t benefiting people who were gaming the system…like people who would suddenly sell the house for profit. Also, would you want to benefit people who bought for rental reasons whose rents haven’t kept up with the payments? And you might not want to save EVERY house that can be saved…maybe empty out some of these exurbs to rehab into farm land, or leave certain neighborhoods to fail (red-lining is the blunt term; although I’d want to do this to outer exurbs…).
However, this would seem to be the best way to use the bail-out money — give breaks and deals to responsible people who want to stay in their homes, protect the banks from principle losses.
Because as it is now, we’re handing the money straight to the bank and they’re sitting on it (at best, worse yet they’re giving their cronies excess loot and taking over smaller, healthier banks). And the people stuck in their upside-down houses (owe more than they’re worth) are a ticking time bomb who could leave and leave a mess behind.
And we need to stabilize what we can. And soon.