Why a Reset button is the only way out.
At this point everything we have considered "solid" about investing, is gone. All the rules, out the window. Thanks to numerous factors ranging from Terrorist attacks, dependencies on Foreign Governments to Government demanding firms like Freddie/Fannie Mac allowing for certain segments of the unreliable population to obtain loans; we are now in serious financial trouble. This is something we can't tax or flood with funds to find a way out. We need to be DRASTIC. Government, who got involved in Real Estate and created false boundaries in a Capitalist system, is now relying on the same system to self balance...that is impossible. It is like doing an Algebra equation and then all the sudden being handed a brand new variable and asking the past formula to answer it. Not happening. Government mismanagement is what has made a normal decline an insurmountable impasse.
One possible solution is creating a false bottom, or essentially a reset button limiting loss. This is something that should be done carefully and particularly. This is not something that should be geared to the impoverished or poverty stricken, instead, it should be geared towards the upper middle class. Those whose credit has been impeccable, earnings stable and purchasing power..reliable.
Example
Lets say you have a 790 credit score and have earned 90,000 or more steadily for the last 3-5 years. You have a mortgage with a $450,000 principle at a rate of 6.9%. The problem is your appraised value has tanked, and now that previously $450,000 house is worth $285,000. The issue now, you can't refinance to a lower 3-4% rate and save yourself thousands of dollars. You are now one of the upside down unlucky, where the only out is to start missing payments and destroy your credit. In this case, the Government should consider some type of solvency program.
Solution & Outcome
What if you were allowed, given your credit, salary, etc, to write down your interest rate to a government sponsored 2%. Essentially saving you thousands of dollars a month. You have now put liquid funds in the hands of the upper middle class, those that create small businesses and reliably produce, purchase and invest. You have just saved part of America.
You could cap who is eligible based on home cost as well. Currently Fannie/Freddie can handle loans up to $729,000; that said make $729,000 the highest amount that can be owed in order to qualify, along with the other credit/salary attributes. You could also stipulate that if the owner sold the property in the next 8 years, they couldn't make more than $729,000 dollars. Essentially, you have frozen the market and created a stable bottom for a vast portion of the market. You have stopped the bleeding on a large level. You have enabled the economy.
You could allocate funds for this program like they do for everything else, consider the hundreds of billions allocated to TARP, a third of which hasn't been tapped. Consider the wrap up of the Iraq war and that spending, if devoted to securing the upper middle class.
This is a viable solution. The question is if America would accept it.
One possible solution is creating a false bottom, or essentially a reset button limiting loss. This is something that should be done carefully and particularly. This is not something that should be geared to the impoverished or poverty stricken, instead, it should be geared towards the upper middle class. Those whose credit has been impeccable, earnings stable and purchasing power..reliable.
Example
Lets say you have a 790 credit score and have earned 90,000 or more steadily for the last 3-5 years. You have a mortgage with a $450,000 principle at a rate of 6.9%. The problem is your appraised value has tanked, and now that previously $450,000 house is worth $285,000. The issue now, you can't refinance to a lower 3-4% rate and save yourself thousands of dollars. You are now one of the upside down unlucky, where the only out is to start missing payments and destroy your credit. In this case, the Government should consider some type of solvency program.
Solution & Outcome
What if you were allowed, given your credit, salary, etc, to write down your interest rate to a government sponsored 2%. Essentially saving you thousands of dollars a month. You have now put liquid funds in the hands of the upper middle class, those that create small businesses and reliably produce, purchase and invest. You have just saved part of America.
You could cap who is eligible based on home cost as well. Currently Fannie/Freddie can handle loans up to $729,000; that said make $729,000 the highest amount that can be owed in order to qualify, along with the other credit/salary attributes. You could also stipulate that if the owner sold the property in the next 8 years, they couldn't make more than $729,000 dollars. Essentially, you have frozen the market and created a stable bottom for a vast portion of the market. You have stopped the bleeding on a large level. You have enabled the economy.
You could allocate funds for this program like they do for everything else, consider the hundreds of billions allocated to TARP, a third of which hasn't been tapped. Consider the wrap up of the Iraq war and that spending, if devoted to securing the upper middle class.
This is a viable solution. The question is if America would accept it.
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