Friday, February 13, 2009

Simple solution to the mortgage crisis

All manner of "fixes" have been proposed and will continue to be proposed to "fix" the housing/mortgage crisis, but none have so fare managed to gain traction. I have a simple proposal which I call the Mortgage Resolution Corporation (MRC), a government-sponsored entity (yeah, I know...), whose primary function is simply to make mortgage payments whenever the consumer fails to do so.

The bank or other mortgage servicing entity would simply electronically "debit" an account for the consumer at the MRC for the principal and interest.

In exchange, the MRC incrementally assumes a partial ownership of the mortgaged property, ahead of the consumer, and possibly ahead of the bank or mortgage servicer for the amount of principle paid down.

The MRC would maintain a debit account for the amount of mortgage payments paid so that if and when the underlying property is sold, the consumer would receive a capital gain only to the extent that they have paid down their MRC debit account. This would provide an incentive for consumers to eventually catch up on their payments and not get too much of a free ride.

The MRC would be like the old toxic waste dump "Superfund" program in that its first job is to keep payments flowing and keep people in their houses, but to also attempt to recoup costs whenever legally possible.

Initially, the U.S. government would fund the MRC, but after it has been in operation for a few years, it would be expected that the private sector would buy into the MRC and supply private capital to run the program with explicit government backing of the mortgages.

This plan would:

  1. Eliminate foreclosures.
  2. Keep mortgage payments flowing to banks, servicers, and investors.
  3. Keep people in their houses even when they lose employment or have expensive health problems.
  4. Earn the taxpayers a healthy return over a 5-10 year period as the housing market eventually bounces back.
  5. Earn homeowners a profit to the extent they maintain the property for 5-10 years and eventually catch up on all mortgage payments.

Do you have a better idea??

-- Jack Krupansky

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