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I have been thinking about this for a while but why doesn't Congress consider passing a bill that makes mortgages as difficult to discharge as student loans.
The reason I think this would be the right thing to is this would tie the consumer to their debt and make them more responsible with their money.
This would also be a compromise so that lower income earners do not have to put large downpayments down on a home.
So since the consumer just can't walk away and mail in the keys, they would take responsibility for the homes they purchased. If they default, the mortgages left in their homes would automatically generate a bill from the IRS where 2-5% of their money income can be garnished.
The reason I'm suggesting this is even more affluent people are walking away from their mortgages (Ed McMahon). I am sure many people have the means to pay the difference for their underwater homes; they just do not want to sell off their assets, or empty their retirement accounts.
I believe this is the way they do it in Europe. It's the right way to encourage responsible homeownership and get out of this mess we are in.
I am only talking about residential real estate and not commercial real estate here.
Federal student are so difficult to discharge because they are made regardless of your credit standing. If they were easy to discharge anybody that had bad credit before hand has very little incentive to pay back the loans.
Doing this for secured loans doesn't make much sense. If you don't pay the asset will be taken back. When sound lending practices are followed the asset securing the loan rarely is worth less than the pending loan balance. The only reason you are seeing problems now is because sound lending practices were not used. The solution is a return to sound lending practices not a dramatic change in the legal structure of mortgages or other secured loans.
If you require everyone to use a 30-year fixed (or perhaps ARM) with a 20% down payment than in the majority of cases the sale of the home in the case of default will be enough to cover the balance on the loan.
But, I'm sure banks would love your proposal. They can be as reckless as ever....you'll be on the hook regardless.
Last edited by Humanoid; 11-15-2008 at 06:09 AM..
Reason: Changing "more" to "less"
The reason something has to be done is because there are too many potential buyers that are scared about getting their first homes.
Student loan defaults were through the roof before the government started cracking down. You had doctors/lawyers with school loan debt in the 1970's who walked away from their loans even though they had the resources to pay off the loans. Than in the 1980's you had beauty school loan defaults and thousands of people were taking advantage of the system. Once the government started requiring the student loans could not be discharged, the default rate started declining. Of course the banks would love for the the IRS to start automatically garnishing people's wages on mortgage defaults.
In europe you have to empty out all of your savings before the banks foreclose on the homes.
It is too easy to walk away from homes these days. Sure their credit will take a hit but you can slowly improve your credit and within 5 years, you will be almost as good as new and within 7 years, everything will be off the books.
I'm looking into a short sell right now for a home in the Orlando area. I just saw the owners move out the wife (I assume) is driving a 55K Lexus GX 470 and the husband is driving a 45K Infiniti M45.
I'm just saying most homeowners have assets, they just choose to either lie about their assets, or are just planning rent and reload in the next 5-7 years to purchase another home.
The reason something has to be done is because there are too many potential buyers that are scared about getting their first homes.
What does this have to do with the legal structure of the loans though? Potential buyers are scared about getting their first home right now because the economy is bad. The solution you highlighted won't prevent foreclosures, it just prevents banks from losing money due to bad lending practices. I'm not sure why you think creating draconian mortgage laws will encourage more first time buyers to jump in the market though...
Quote:
Originally Posted by aneftp
Student loan defaults were through the roof before the government started cracking down. You had doctors/lawyers with school loan debt in the 1970's who walked away from their loans even though they had the resources to pay off the loans.
In europe you have to empty out all of your savings before the banks foreclose on the homes....
Apples and oranges. You can't take back an education and sell it. Mortgages are secured by the home. If the borrower defaults the lender takes back the home. Under sound lending practices the vast majority of the time the sale of the asset will cover the pending balance of the loan. The situation you are describing only comes about due to poor lending practices.
Quote:
Originally Posted by aneftp
It is too easy to walk away from homes these days. Sure their credit will take a hit but you can slowly improve your credit and within 5 years, you will be almost as good as new and within 7 years, everything will be off the books.
So what? Again, its a secured loan. When you walk away from your home you lose your home!!
The laws you are describing would encourage poor lending practices from the banks.
I agree with Humanoid... mortgage debt should be made with credit in mind and therefore not treated as student loans would be. Banks need to accept loses and maintain stanards to minimize these loses. Thats how banking works. If you start protecting mortgages, next auto loans will want protection, and other secured debts will soon follow.
Why should commercial real estate developers get a pass?
Because the OP doesn't own commercial real estate.
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