Troubled Assests Relief Program
The rush to bail out our financial institutions has all the luster of a used car salesman telling me I have to buy the car I'm looking at right now! Another guy was just looking at it and went to get his money! If another guy went to get his money, why is the salesman pressuring me to buy? To be certain...something had to be done. But I don't think this was it. When the first proposal failed the stock market actually bounced back. The second proposal passed and the stock market went down. What does that tell you? They could have waited. They could have taken their time and done only what needed to be done. They didn't. The measure passed with no oversight and look at the mess we’re in. Banks that accepted taxpayer’s money from the Troubled Asset Relief Program have conspicuously spent money on lavish trips to luxury resorts. While claiming they’re not spending taxpayer’s money on such trips, there’s no way to know. The lack of oversight has allowed banks to commingle TARP funds with their own. The Troubled Asset Relief Program was intended to infuse banks with cash that they would then use help refinance bad home mortgages and to extend credit to businesses to help get the economy moving again. Not only was the “Bank Bailout” or TARP funds misused, the program was unnecessary. There is only one way out of the housing and housing finance crisis: WE MUST KEEP HOMOWNERS/BORROWERS IN THEIR HOMES WITH AFFORDABLE MONTHLY PAYMENTS.
The outcome of any massive governmental intervention must result in an immediate, effective and significant curtailing of the increasing tide of homeowners who default on their loans. Clearly, the least amount of cost with the least amount of risk in any governmental intervention is best for the taxpayer. A solution that grows our already high national debt the least is clearly preferable. Not to mention an answer that does not create another large federal bureaucracy which puts way too much power over our housing market and our entire economy, in too few hands is also one that all parties, taxpayers, homeowners and lenders would agree is better.
That's why I support "A Solution That Works", developed by Dan Gilbert, Chairman of Quicken Loans. The solution would keep homeowners in their homes with predictable FIXED amortizing monthly payments. Cost the taxpayers a FRACTION of the 700 Billion dollar "rescue plan" with less complication and less bureaucracy. Give the investors and owners of the loans and securitizations significantly higher odds of recovering their investment. It will stabilize prices, stop the free-fall in home values. And can be implemented very quickly. The federal government should enact a bill that applies to: Adjustable Rate Mortgages that do NOT have a 2% or lower annual cap and a 6% or lower lifetime cap (this covers just about all of the bad sub-prime ARMS out there). Any "Option ARM" . Any "Interest Only" loan, adjustable or fixed, that is scheduled to turn into a "fully amortizing" loan in the next four years. The servicers of any loan that meets the preceding criteria will be required under this proposal to: 1) Reset the borrower's rate and term immediately to a 6.375%, 30 year fixed rate fully amortizing loan. 2) For a period of 3 years from the "reset date" the federal government subsidizes the homeowners 6.375% principal and interest payment so that the homeowner is actually paying 4.875% on a 30 year fixed, fully amortizing loan. 3)In the 4th year the subsidy is reduced 1% bringing the homeowners rate up to 5.375%. In the 5th year the subsidy is reduced to 1/2% bringing the borrowers' rate to 5.875 and in the 6th year the subsidy is eliminated and the homeowner is in the 6th year of a fully amortizable 30 year fixed rate mortgage paying 6.375%. And it stays fixed for the full term of the loan or until the homeowner sells the home or refinances. 4) The owner of the whole loan or the trustee of the securitization should get a one-time shot or incentive to "write off" any "negative equity" that has built up since the beginning of the loan until the time of the reset. 5) The borrower must have lived in the property since obtaining the original loan and must currently live in the property. 6) Void any and all pre-payment penalties on these loans. There is no need to tamper with the principal amount if the homeowner is given affordable long term fixed-rate financing, and therefore can afford monthly payments.
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