In the last post, I allude to that mortgage problem was created over 30 years by two Democrat administrations lead to many cases of bank fraud were encouraged and abetted by Democrats in the White House and Congress. For details.
The problem I noted means there is good money and bad money in the system from this problem.
I would assert without much explanation that good money loaned out should not have a significant change. If the loan was properly done, the banks should not receive a windfall and the homeowner who goes bankrupt has other issues that handing out money will not likely solve.
If the problem is bad money loaned out due to bank fraud with the banker's complicity, we need to focus on that. We need to create a method that simply and easily creates a tracking mechanism. The problem was created by Democrats at the cost of the Treasury and we need to be able to see the consequences with the cleansing effect of sunlight. Failure to expose this to sunlight will guarantee that our economy will not recover for a generation or more.
I would suggest that a person who is upside down and the bank wants government assistance, would need to have a report and documentation that shows whether the debtor could not have qualified in the traditional market. If the customer would have qualified, but some new-fangled bell or whistle on the mortgage caused the debtor to go upside down, then Uncle Sam would issue a voucher to allow the issue of mortgage guarantee or a mortgage modification to remove the problem bell or whistle. Through the voucher, Uncle Sam would provide the additional money to provide consideration to underwrite the modification (in non-lawyer terms, Uncle Sam would pay a premium to pay the bank to adjust the terms of the mortgage). The bank would then collect its stack of voucher to Uncle Sam for redemption.
If the banker and the customer could show that the house was appraised at too high a price at the time or that the neighborhood's home values were artificially inflated in this bubble, Uncle Sam could issue a voucher for additional consideration to modify the mortgage.
If the debtor has back payments due that meet these criteria, he could apply for voucher and stay foreclosure proceedings and any collection efforts up to the voucher application up to the applied amount. If the applicant does not receive the amount on the application and the stay reached non-foreclosure matters, the applicant could be charged non-dischargeable interest on the debt of 12% plus $1000 penalty. This would favor likely successful applicants to apply and only seek stays where likely to have intended consequences.
Neighborhoods could be certified as artificially inflated if confirmed by one appraiser and reviewed by an independent appraiser. The neighbors could split the cost. They could receive a voucher for the costs of the appraisal.
This process would cause money to come into banks to pay off the screwed up mortgages and quickly get the mortgages' true values adjusted on their balance sheets. Healthy banks will stand out for struggling banks. Struggling banks will be bought up quickly for their true value. Good practices will have been rewarded.
Persons who were cheated by this Democrat-sponsored fraud will be able to get relief that improves their personal credit ratings. Homeowners have a way to reduce their property taxes where the fair market values are adjusted.
The US government can limit the amount of money spent out of the Treasury.
The remaining problem is what do we do with the bad-money loans that the homeowner committed bank fraud? Those persons need to have some result other than bankruptcy. They need to have a limited, non-dischargeable (for, say, 5-7 years) civl penalty, of $5,000 or 50% of the overage (whichever is higher) per incident. Serial offenders would pay more than single-time offenders. This would prevent the person from easily re-entering the market without paying some money back to the Treasury. It would also force the person into a cheaper property to avoid repeats. Being civil, the fine should be easy to impose, but small to avoid long-term punitive effects for single occurrence.
One of the results of this system, I suspect would be that it would capture many people who are buying and selling houses for investment purposes. I don't know that that serves the purposes for which Fannie Mae was built. Those should be squeezed out of the system. The voucher system would allow accountability for that.
Instead of injecting cash, a system that creates a standardized document and problem assessment will give us feedback on what happened in this situation. This will provide information for future economic historians to account for this problem.
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