Your Ideas about the Mortgage Crisis (loan, interest rate, foreclosure, credit)

[Hoot Owl]

I think our leaders need to figure out a way to extend the lengths of the loans approaching default. In other words, if a homeowner approaching default has a 30 year note, then extend it to 40 or 50 years. That gives homeowners some breathing room, lowers their monthly payments (in many cases), and gives them time to stay in their homes and the potential to see the value rise and ultimately make some money.

Let's face it, when you buy a home you are assuming a huge risk. There have never been guarantees that the value will increase. The banks and mortgage backers ultimately agreed to carry these notes; therefore, they share the risk with the homeowner.

Taxpayers should not be responsible for bailing out homeowners. Not now. Not ever.

Moderator cut: orphaned what ideas do you have?

[Fant]

I agree. I believe they should offer both ... refinance with current low rates and extend the timeframe. However that only works for those that want to stay in their homes. However the problem is for homeowners who owe more than their property is worth, there is no incentive to resist foreclosure other than the harm to their credit history. Financially speaking, foreclosing is a better option for them as they can theoretically remove any debt and then rebuy a similar house and have the lower principal. The banks really need to calculate how much they will lose by having the homeowner foreclose and then having to sell the house at a reduced price. They need to accept that their investment is worth less than they paid for it and be willing to refinance it for the lower amount. Bottom line is that no one wants to hold a home that is worth less in real life than on paper. Either the homeowner eats the loss or the bank eats the loss or the govt eats the loss. I think the loss should be equally spread between the homeowner and bank as they are both at fault.

[cleasach]

As someone priced out of the current market, I wouldn't be against extending the life of the loan from 30 years to 40 to lower the payments, but only to people who own a single home and live in it.

What I am not in support of is providing relief in the form of handouts to 1) people who can't pay for something that they contracted to pay for or 2) "investors" who bought up a bunch of properties, drove the prices up to push "regular" working people out of the market and who expected to make a killing. That to me was a gamble that they lost and that's too bad.

I have a hard time getting my head around this whole "starter home, trade up to a bigger, fancier home, buy huge on a beer budget" type of thinking. I just want something small in good condition that I can live out my days in with my spouse and if we can afford the monthly payments I couldn't care less if it goes up or down in value. It would just be home to me.

[Hoot Owl]

Originally Posted by cleasach

As someone priced out of the current market, I wouldn't be against extending the life of the loan from 30 years to 40 to lower the payments, but only to people who own a single home and live in it.

What I am not in support of is providing relief in the form of handouts to 1) people who can't pay for something that they contracted to pay for or 2) "investors" who bought up a bunch of properties, drove the prices up to push "regular" working people out of the market and who expected to make a killing. That to me was a gamble that they lost and that's too bad.

I have a hard time getting my head around this whole "starter home, trade up to a bigger, fancier home, buy huge on a beer budget" type of thinking. I just want something small in good condition that I can live out my days in with my spouse and if we can afford the monthly payments I couldn't care less if it goes up or down in value. It would just be home to me.

+1.

No one had a gun held to their head when they signed the closing documents. They assumed the risk. That's the fact.

But, I believe there is a business solution to all of this mess.

It's not unlike the crisis facing many businesses purchased within the past few years that were financed through private equity firms. Many of those businesses are at risk of breaking certain debt covenants (basically "rules" in the loans that specify that the business must maintain a specific cash flow to debt ratio... as an example) with their banks. If these companies break the covenants, then the banks can extend the terms of the loans at a higher interest rate. The companies are trying to avoid it because long-term it will cost them more money. But, if it happens, at least the companies can continue to operate and stay in business. It's not ideal by any means. But it's a risk ALL PARTIES KNEW when they did the deal.

The same would hold true for homeowners and their mortgages. Extend the terms. Charge a higher interest rate. That keeps people in their homes. It makes money for the bank. And it keeps everyone out of MY WALLET!