a. Current law-abiding households who are current on their mortgages and are seeing negative real value of their primary residence will be able to remain in their homes at affordable cost with a potential for some upside appreciation in the value of their property and a participation in the realization of that potential together with Govt on sale of their property.
b. Banks and other mortgage owners will have a value, real and ascertainable, assigned to each and every such distressed mortgage AND they will have, therefore a viable asset to sell to mortgage repackagers on Wall Street; this frees up capital to lend out on new mortgages under more appropriate terms (20% downpayment, 30% max housing cost : household income)
c. Government gets a real, visible path to recovery of money appropriated to this program, with interest.
d. Government will be helping citizens who most need help and restoring their confidence in The American Dream.
e. Government will restore confidence in the banking system worldwide by establishing a system of mortgage valuation that establishes a valuation methodology that could easily be cloned by private investors and capitalized on by the Financial Services industry worldwide.
f. Bankers and other lenders will now have a method of assessing the value of collateral offered interbank and lending between institutions, currently effectively at a standstill, can be reinvigorated.
g. No new government burocracy needed. FNMA/FHLMC become effective arms of the Federal Reserve who is charged with housing stability as a third mandate.
The result will be a very viable, self-funding solution to the current housing/banking crisis.
Homeowners will see their property values written down to reasonable values. Mortgages then become easy to value as the underlying properties have a value. Homeowners have an affordable mortgage payment, freeing up discretionary income for spending on other goods and services.
Most importantly, homeowners will not be tempted to walk away from unaffordable payments, or houses worth less than they owe, Foreclosure and bankruptcy is avoided completely.
There is a very real potential for gain by the government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established.
The banking system is unclogged and consumer confidence is restored. All without requiring additional tax burdens on unborn generations.
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