- I don't think people need payment assistance; they need principal reduction
Everything is tied to principal: LTV for refinancing on better terms; monthly payment; bank balance sheet.
- It's way too small
30,000 mortgages is almost not worth doing. Unless it's a trial to see if it would work on a bigger scale. And "up to $50k" is probably not worth it either. It has to be more on the scale of the size of the downturn.
My idea is this:
- Pick a range of dates, something like 1-Jul-2006 to 31-Dec-2009
- Use the Schiller index or something equally valid to establish a value as of a date like 31-Mar-2011
- "Refinance" the mortgage; owner gets new loan for amount equal to somewhere between 90% and full value. The rest is bought by a Fannie/Freddie hybrid vehicle which packages them into MBS and sells them to the secondary market.
- The vehicle holds a lien against the house. If you sell the house, you settle up. If market conditions improve, you can settle up early.
Example:
- During the period, you bought a house for $450k - You have a $400k mortgage - Today it is worth $275k - You can "sell" at least $125k and as much as $152.5k to the government
Limits:
- You can only do this once - You can only do it for your "primary residence" - You can't get an equity loan against the property with the lien in place - If you still get foreclosed, the government gets paid first
/jordan