Cut your mortgage by 30%
I live in an expensive part of the world. I watch real estate closely, I check Clean Offer every day (thanks to my amazing realtor, Warren Mullen).
The FDIC is FINALLY floating the brilliant idea of slashing mortgages.
FDIC Chair Sheila Bair
(Hmmm, notice who is offering to FIX things for the American taxpayer, after we’ve been sold up river by the male dominated banking system and the Federal Reserve? A WOMAN…)
Economists agree that decreasing mortgages might be the only way to stop the massive avalanche of future foreclosures.
I see that most houses that go on the market in my area (San Francisco Bay Area) go on the market at inflated prices that reflect the real estate bubble of a few years ago. Problem is, that bubble has burst. No one can get loans, bank lending is super-tight despite being bailed out by billions of hard earned American dollars. If you missed ONE credit card payment, your credit score could drop 100 points, your credit cards can shoot their interest rate up to 29% and you are screwed. NO HOME FOR YOU!
The houses that do sell, sell for 20% to 30% off the asking price. So, in my opinion, banks should be forced to lower mortgages 20-30%.
And I’m not alone in thinking this…
Economists like Yale University’s John Geanakoplos, have argued that cutting the principal on delinquent loans should have been the administration’s practice all along. For the nearly quarter of American homeowners who owe more on their mortgage than the house is worth, it’s by far the best way to keep them in their homes and reduce foreclosures, Geanakoplos said in an interview last month.
Guess who benefits? Banks? Yes. YOU? YES. Finally, a solution that benefits the taxpayer who keep the economy afloat.
Obama’s plan of loan modifications? FAILURE. 1/3 of American homeowners have underwater mortgages. With loan modifications, the bank agrees to make your 30 year mortgage into a 40 year mortgage. If you carry a $1,000,000 mortgage, you pay $2,160,000 over 30 years, at 5% interest. So now the bank agrees to charge you a bit less interest. But you’re paying an extra 10 years for a mortgage that is more than the value of your house. Guess who profits from the loan modification? Not you.
The only solution is REAL WORLD. Home values have dropped 30%. Drop mortgage values by the same 30%. NOW.
If mortgages were dropped with the house price then the banks would lose out on that 30% that was agreed to pay them when the mortgage was set up. But it might work as with more mortgages defaulting and the banks losing more money that way losing 30% might be a small price.