California Foreclosure

Don’t we all know that the bailout plan failed at first because the public is disgusted and would rather take a short-term financial downturn themselves than reward the powerful elite who have been fleecing us for decades. The public is sick to death of trickle-down economics, and the outcry was just too loud for government representatives to ignore.

So what does congress need to do? Congress needs to come up with a way of getting cash back into the credit market in a way that is fast and fair to the public. Here you go:

What we should do is take the $700 billion and pay down the mortgages of all the homes purchased between a certain time period, (let’s say 2000 when the real estate prices started going wild and 2006, when they really started going down). That’s it. That’s how simple it is.

Alright, I realize it isn’t that simple, and I anticipate some of the issues below, but first, let’s take a look at how this resolves the problem.

After a little research at the National Association of Home Builders (NAHB) website, I found that there were about 26 million homes sold between 2004 and 2007. So let’s estimate there were about 35 million sold between 2000 and 2006 (pretty rough estimate, but in the ballpark, I’m pretty sure). Dividing into the $700 billion, that’s an average of about $20,000 per home. With an average home value of $200,000, that means about 10% of the home value. Are you following?

So if you bought a home for $200K, the Bailout Commission writes a check for $20K that gets applied straight to your mortgage. You paid $500K, your mortgage holder gets a check for $50K, etc. So the first thing that happens is the lenders are all of a sudden flush with cash. They pay their obligations. The credit markets unfreeze. Financial institutions get back to business. (Hopefully not as usual).

In the meantime, you’re happy, right? You may not have gotten a bunch of cash to spend but your mortgage is much lower. If you bought during those years you’re probably still under water, but not drowning as much as before. So you’ll still have to take some punches, but it will surely soften the blow. You’re less likely to default and file for foreclosure and you feel more hopeful.

OK, before everybody starts tearing the idea apart, I’ll point out some of the potential objections:

1. Oh no! It’s Socialism! - Yes, I guess it is. And there will definitely be some people who will object to it on that level. But somehow I believe those objections will come from those who don’t benefit from the rescue plan. I have a feeling the 40 million or so families who get those mortgage reductions will be able to live with it.

2. It’s not fair! What about all the people who bought homes before 2000? - Give me a break! You’ve enjoyed six years of super-low interest rates and hyper-appreciation. And now you want this mortgage reduction too? In the name of fairness? Please. And as for those who bought after 2006 when the market was already falling, well, I’m sorry, but that was just too dumb. You don’t deserve a break.

3. It’s too complicated. How do we decide who gets how much? - We may need to come up with some formulas, but I actually think it will be pretty simple. It’s just a flat percentage of the purchase price of the home across the board.

So what other flaws do you see with this bailout plan? Let me know! And if everybody else thinks this is as simple as I do, let’s push it on our representatives.

My disclosure: In the interest of full disclosure, I should divulge that I am among those who would benefit from this mortgage reduction plan, so I do have an agenda, but at least it isn’t a hidden one.