A Modest Mortgage-Solution Proposal

Forget Bailouts, Bad Banks, and Toxic Mortgages Assets. Here’s a new idea for solving the housing-mortgage crisis:

The Department of Mortgage-Crisis Resolution*

Let’s Insert the Federal Government Between the Homeowner and the Mortgage Company. With its long-term investment horizon, this is truly something that really only the Federal government can afford to do.

Homeowners in Sub-Prime, Adjustable-Rate Mortgages in this new program can continue to pay the same monthly payment that they were paying before the crisis-inducing rates increased.

And Mortgage Companies Can Receive the Higher, Adjusted, Contractual Payments.

In Between Homeowner and Mortgage Company sits the Federal Government, with its new “Department of Mortgage Crisis Resolution.”*

Here’s How It Works:

1. The DMCR issues the homeowner a second mortgage and puts a lien on the underlying property. This additional mortgage extends the length of the original mortgage beyond the length of the original mortgage, with an additional “due on sale” clause.

2. The homeowner makes his regular monthly payment directly to the DMCR.

3. The DMCR calculates the difference between the payment received and the outgoing payment to the mortgage company, and adds that difference to the homeowner’s second mortgage.

4. The DMCR then forwards the higher, adjusted payment to the mortgage company, keeping this sub-prime mortgage current.

5. When the first mortgage is paid in full, the second mortgage kicks in, at the same monthly payment rate as the first mortgage, until the second mortgage is paid in full.

6. If the house is sold prior to the term of one or both mortgages, the sale is contingent on satisfaction of both mortgages.

If You Think About it, This Is a Pretty Good Plan.

No “purchase” of “bad assets” or “toxic debt.”
No unraveling of “tranches.”
No “moral hazard.”
No “good banks” and “bad banks.”
No “free ride for deadbeats.”
No “windfall profits” for “cold-hearted” banks.

Only the Federal Government can afford to wait out such a long time-frame for the return of its mortgage investment. But no bad assets are purchased. And the taxpayers eventually will get every invested penny back, with interest.

Since Most Houses Are Sold Long Before Thirty-year Mortgages Are Paid Off, we will probably get most of our money back sooner than the thirty or forty years of the mortgage. And the homes are almost certain to increase in value far beyond initial mortgage amounts, over a long-enough time. So long as we act now to prop up this long-term value.

The Federal Government—We, the Taxpayers—Are Assured of Getting Our Money Back. And since the DMCR mortgage rate can match current retail mortgage rates, the net effect is of the government buying long-term Taxpayer Bonds, which purchases counterbalance the sales of T-Bills and Treasury bonds.

This Is a Win/Win/Win Opportunity to prop up home values, minimize mortgage defaults, protect the homeowner, protect the mortgage companies and investors, and kick-start the American economy once again. And quickly.

What Will the Partisans Say About This?

The Democrats Might Oppose This Plan because the struggling homeowner doesn’t get a handout from the Federal government. And the Federal government doesn’t get to spend just wads and wads of taxpayer money that we don’t have. Curse those tax-and-spend Democrats!

The Republicans Might Oppose This Plan on the ideological principle that the Federal Government just shouldn’t get involved at all in commercial enterprises. Curse those tight-fisted spend-and-spend Republicans!

But the American People, Desperate for Change, might just look at this thing, see the potential profit for our grandchildren, instead of endless debt. Can the American people of both sides of the ideological, partisan divide go along with a plan that works for everybody?

Like the American Voters Said in November,

“Yes, We Can!”

[*DMCR: better designation to be named later.]