Time to consider the home, not the owner, as the object of public investment?
Maybe, to address the burgeoning mortgage crisis, we need to look at a different way to re-value these sliding home values.
Consider HOMEBOUUND long term low interest (5%) mortgages, that stay with the house even if when is bought and sold and changes owners...
Use the rest of the TARP money to turn those ARMS into 30-40 year SIMPLE INTEREST mortages that stay with the home, not with the person.
People could pay it off early if they found other financing, and could sell out to retrieve any equity they might build up, but the future could be made safer from these same mistakes by not allowing future borrowing against the equity of any house under a "homebound" mortgage.
Each new owner could assume the terms of that homebound mortgage, or they could buy out the government (public) stake if they have an alternative. Otherwise, they could assume the existing loan along with their commercial mortgage package, if it saves them money over the long run.
By tagging the loans to the home, not the borrower, the investment is made much safer, and that 5% simple interest is certainly a better return on our TARP investment than writing these off as a total loss or just throwing money at billionaires who won't use it to restore value to our middle class homes.
With the simple interest plan, the taxpayer would get their money back, with at least SOME interest, and the houses would all revalue to a stable level, and those homeowners would not have to be evicted. It could even be done retroactively for anyone whose home has not been sold out from under them yet.
I realize this is coming from an economic novice, and the experts among us may get a belly laugh from it, but it seems like something to at least consider.
JEP
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Left out the logical conclusion that We, the People, would make a much more benevolent lender than the predators who created this mess in the first place...
January 15, 2009 12:34 PM | Reply | Permalink
Intriguing idea, JEP.
January 15, 2009 12:41 PM | Reply | Permalink
Loans were assumable for decades, and decades in the old days. Bring em back. Ok with me JEP.
January 15, 2009 12:43 PM | Reply | Permalink
FHA loans used to be assumable. Does anyone know if that's still true?
Anyway, I agree with Steve above...you should post this at Obama's site.
January 15, 2009 1:27 PM | Reply | Permalink
It all works for us and our 7% ARM, to me you are a genius. Great work Jep. Post your ideas at the Change.gov
You got my vote.
January 15, 2009 12:53 PM | Reply | Permalink
Steve, that is what more than a few of us are looking for. Where to send ideas. That is Flower's blog.
Not my rants or philosophy but ideas for change like you, Miguel, TheraP, Pseudo,Sleepin'..
You get the picture.
January 15, 2009 1:20 PM | Reply | Permalink
Just posted it over at Change.gov, hope it doesn't get lost in the heap.
One of the things about posting occasional ideas here at TPM is that the crowd is still intimate and the hosts are still personal. This is one of the rare blogs that seems to have both widespread influence and uncrowded commenting opportunities.
I would guess this is one of the most lurked-over of the notable blogs, with a smaller percentage of actual commentors. Thus, a good (or just interesting) idea promulgated here might get rolled around the 'sphere much more quickly than via other outlets.
Purely speculation on my part, but seems like a logical conclusion. Thanks for the comments, all, and I hope everyone understands that from my laymen's POV, it seems as if the REAL value of the American Dream can be so easily contrived, quantified and packaged for sale to foreign banks, it can also be rescued with the same adherence to upholding that contrived value.
Any Wall Street book-cooker who cries fould on capitalistic principle will seem the hypoctite, especially considering how little we have demanded of the rich in terms of accounting for our middle-class bailout of their billionaire lifestyles.
January 15, 2009 1:48 PM | Reply | Permalink
Thanks for doing that JEP. It's a great idea. And the wonderful thing about a place like this is that you "try ideas out" and then move them into the wider sphere.
Bravo!
January 15, 2009 1:59 PM | Reply | Permalink
TheraP, weren't you on FDL during their liveblog coverage of the Libby hearings? Or ami I misremembering?
January 15, 2009 2:51 PM | Reply | Permalink
JEP - sorry to be dense but how exactly does it work for the loan to be tagged to the house and not the homeowner? How can the house make mortgage payments to the bank? The house doesn't have a job and salary, the person does.
I'm not trying to be argumentative but simply don't understand how your proposal would work
January 15, 2009 3:32 PM | Reply | Permalink
Here's the gist of it, in a big old nutshell:
We (the taxpayers) buy the mortgages outright, and become the owners of the paper. If the homeowner goes belly-up,(which would be considered the last resort) that house hits the market with US as the owners, and that mortgage could be assumed by a new buyer.
Also, if equity has been achieved in the house, the former owner could cash out when they sell. Those who stay in their homes and pay for ten years or more would have substantial equity built up again, especially if they were not allowed to borrow against that equity.
Again, they could only cash out if they sell the house and transfer the rest of the mortgage via an assumable loan to the new owner as part of the deal, or get private financing to buy out the long-term public obligation.
By tagging the loan directly to the house, it holds that home at a strong market value, and adds stability to the housing market. It also gives the typical middle-class homeowner who might benefit from this program, more disposable income.
And, even if it sits on the market for some reason, a tagged home would still represent value to the lein holders, (US pluribus Unum...) a symbol of the investment we made in the housing market... ...which is more than we got from the banks and big-money guys who just took the other 350 billion.
This should be a middle-class bailout, and their homes are a great way to focus that bailout.
The more homes in the $100,000 to $200,000 range that can be refinanced by this program, the better. In some places, this represents potential home ownership at rates lower than renting, maybe this is an opportunity to really achieve that "ownership society" thing we heard someone talking about...
The money we already gave them was supposed to find it's way to the mortgage market, but it got de-trickled somewhere. This money needs to be earmarked for the middle class homeowner, through ownership incentives. We did it after WW2, we can do it again.
January 16, 2009 12:09 AM | Reply | Permalink
JEP - You say that "We buy the mortgages outright".
So effectively what you're saying is that the Federal government nationalizes the banking system?
The homeowner doesn't "own" the mortgage, the bank does. So "we" would own mortgages that possibly are at or above the value of the homes. How can we buy these mortgages from the banks?
January 16, 2009 7:01 AM | Reply | Permalink
"the Federal government nationalizes the banking system?"
Banks have more than one kind of loan... this anly applies to those FACING FORECLOSURE, due to an ARM skyrocketing their monthly payments beyond their ability to make the payments.
This is intended to revalue the American home on the real estate market, because these foreclosures are the bottom sagging, and by shoring it up from bottom up, the whole market gets support.
I think I read a headline this morning, after the latest round of banks begging for cash, "Nationalization no longer a dirty word."
As their icons collapse, the fiscal prurients still cry foul, as if all the conservative complaining in the world is going to fix the mess the book-cookers created.
Fiscal restraint is a great idea, but certainly can't be used to describe the Bush administration and their Daddy Warbucks base.
If we don't take a very socialistic approach to this current debacle, the fiscal conservatives will be hoarding walnuts from their neighbor's trees, instead of gold, very soon.
January 16, 2009 10:28 AM | Reply | Permalink
sorry for being dense. But even for people facing foreclosure, you can have the owner sell the house to a 3rd party buyer and the mortgage gets assumed by the buyer. But even in this case the bank (lets use Chase as an example) still has a lien on the house. The new buyer pays the mortgage payments every month to Chase. But in this case the government is not involved. The government (or the taxpayers) don't end up owning the house. I guess the government would only own it if Fannie Mae was the provider of the mortgage.
January 16, 2009 5:38 PM | Reply | Permalink
For some reason I cannot access the briefing book right now. But, when I can, I will look for your post and vote up.
January 15, 2009 7:06 PM | Reply | Permalink
Jep's post on change.gov, Citizen's Briefing Book.
Vote him up...
January 16, 2009 7:36 PM | Reply | Permalink