Nationalize Mortgage – revalue price and reduce rate

 

Even better than simple home price devaluation proposed in the above blog is the concept of mortgage revaluation that

a) lowers mortage principal

b) preserves equity of home owners and

c) provides lower interest rate for 30 years

It is reported that one of the presidential candidate has a plan to reset mortgage to 90% of market value and let home owners keep their existing equity.

http://money.cnn.com/2008/10/08/news/economy/mccainhouse_easton.fortune/index.htm?postversion=2008100813

Whether the above idea and the following specifics are in one of the presidential candidates  plan or not doing mortgage reset has several benefits:

-it allows market correction of home values which is must given the un justified appreciation since 2000 due to lending scam perpetrated  by lenders knowingly or unknowingly

-it allows home owners to retain their home equity from initial downpayment and subsequent principal payments

Home prices, once reset, should raise at the rates that are supported by economy. If they don’t raise that is fine because thtat is what the economy can support

Using  700 Billion dollars  to arrest the slide is not natural and any thing that is not natural is not right remedy.  We all know that. The right solution is to let the slide happen. However the slide should be handled in a way that will  avoid  pain home owners and to lenders. 

Qualification for mortgage modification should not be based on whether there were defaults. If that is the qualification then every body will stop paying.  It should apply to all owners.   

Common fear is that foreclosure in a neighborhood would affect home prices of that neighborhood. I would argue that the the prices of neighborhood should in fact be affected and not just by the house that came up for foreclosure but by fair market value as judged based on 2000 or such cut off date.  One can’t keep home prices at artificial prices too long.

Lenders get to recoup their losses when treasury provides liquidity in proportion to their loss using the 700B set aside . Tax relief to lenders should also be encourage when they write off the loss.

‘tax payer’s money’ is a cliche and is used without any relevance. Politicians, economists and others without FDR like vision are using this to scare people. Mortgage nationalization  benefits the nation, economy and will provide job opportunities as the economic machine continues to hum as opposed to current stand still state.