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Under My Plan, any bank can apply for the program. They can sell their entire[*] mortgage portfolio to the government (I think it needs to be all-or-nothing to avoid cherry-picking). In return, they will get:
- A Lump Sum of principal that represents some calculated percentage based on their portfolio and home values based on that zip code research that's so hot these days (so maybe 20% down? 30%?)
- Suitably dated Treasuries that pay the rest over time (5 years? 10?); these will be special bonds that can be (only?) used at face value as Tier 1 capital.
In exchange, they must exit the (owner-occupied, first- ?) home mortgage market. They helped screw it up, it's going to be expensive to fix, so this is their punishment. Go find another way to make money and downsize if you can't. Not My Problem.
Ok, so now (via the GSEs), the government owns the mortgage market; they are already some percentage of the way there; My Plan seeks to increase this percentage from somewhere around 30% to somewhere around 80%. This is what the government has always wanted (see CRA, etc.), so why not cut out the middleman? The future stability in the housing market alone should be worth it. Immediate 6-month moratorium on foreclosure, because ...
Next up: homeowners. Any homeowner whose mortgage is at least 90% of Current Assessed Value[to be calculated, etc.] can apply for the program. What you get is your current mortgage (and combined, if you have multiple) refinanced as a 40-year fixed 4% mortgage (with 5 years of non-amortizing interest-only payments?) for 100% of the Current Assessed Value, plus an option to the government for the balance of your current mortgage (Example: $400k mortgage on a $300k house becomes a $300k mortgage and $100k option). If you sell the house, any gain pays off the option up to 100% (in which case the balance *stays with the house* -- factor that into your sales price!) plus (50%?) of anything over it. If you hold the mortgage until the end (good for you!), the option amount gets added to the principal at that time to extend, at your current interest rate, etc. Anyone who signs up for the program must combine all housing debt and can add up to some number ($100k?) of other consumer credit at the time of closing. These new government loans cannot be subordinated and cannot have an additional lein, such as by a home equity line. This is a once-in-a-lifetime offer: if you take advantage of this, you are essentially out of the "housing market" ... you will not be allowed to get a mortgage on any other property (commercial, 2nd home, etc.) until you've closed out this loan.
Finally: going forward. We continue to make FNMA/FMAC (combine them so they don't "compete" ...?) standard mortgages available to anyone who meets the specifications[**]. If you have one of the loans above, you can "trade up" if your financial situation/housing market gets better and you're willing to close out the option by paying the face value ($100k in the above example). These loans will be securitized as per usual and traded in secondary markets. Non-goverment-issued home loans (even ones that exist today from non-participating banks) will become "sophisticated investor" vehicles subject to the usual kinds of disclosures ($500k liquid net-worth, etc.) that you'd see on limited partnerships and private investments. Essentially, "most" consumers would be barred from that market, which means only the government loans are attractive.
[*] Details TBD, but I'm thinking that it should only apply to owner-occupied, one-per-customer, etc. to keep the specs out.
[**] Lost in all this finger-wagging is how much better the GSEs have been at understanding mortgage risk than places like Countrywide and IndyMac ...
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In both cases, it's up to the bank and the consumer to decide whether they "need" this help. It should be a good deal for those truely in trouble, but it should come with a cost that should also be real. My feeling is that the restrictions shouldn't be onerous but should provide a way to reduce scams and fraud. That is, if you're just a working family who is in over your head, you should have no trouble with the restrictions; if you want to be a player, this product is not for you. If your situation brightens, you can buy your way out; if not, you can live out your life in this house you bought for too much without the sword of Damacles hanging over your head.
I think this plan balances consumer-protection at the low and and regulation at the top end. Thank you for your time, there will now be a brief question and answer session. Helen Thomas gets to go first.
/jordan