While talking to some people about different bail out ideas, and how they reinforce bad behavior on the part of investors, lenders, and buyers, all at a great cost to those of us that made the wise choices in these fields, I came up with an idea.

Barney Franks and Chris Dodd have proposed a $300 Bullion (with a B) package for FHA to cover loans that are currently in default, if the lenders will change to a fixed rate and drop the principal to 85% of today's current market value. in other words; people that bought houses with loans that they could not really cover will get help and 15% of the already shrunk equity in the houses of people who made wise buying decisions will just get washed away. Lenders who wrote "bad" loans will get out of the REO ownership biz and back to writing loans, and investors will take a much smaller hit than if the market was just left to find its own level. Now don't get me wrong I feel for all of those people in dire straights over this. They are my friends and neighbors too. But making mistakes hurts, and while I would like to help the people in trouble, I don't think it should fall on the shoulders of the people that have made the Conservative and wise decisions in buying, lending and investing.

Don't get started on all of the REO's and foreclosures out there hurting the market right now. Those empty houses are sitting there washing away equity and buying power from everybody. I say everybody because banks can't loan money that is tied up in REO's and if people can't sell their existing homes, they can't buy up.

Lets just let that invisible hand of the market do its thing. Yes it will hurt. But then we can adjust and move along.

What I came up with is this. Turn Franks and Dodd's idea on its head. Take the money and put it in the hands of HUD who already runs and services direct lending programs, to run this new program. Some of the points would be:

• Very low interest rates. Just enough to cover the cost of servicing.
  
• The loans would only be available to home owners who have never been in default.
• The loans would only be available to home owners that have made good borrowing choices; fixed or well capped adjustable. NO CRAZY LOANS!
• The loans would ONLY be for buying REO properties.
  
• HERE IS THE BIG ONE, The loans would NOT BE FOR BUYING UP! they would only be used for getting home owners "boot-strapped" into land lording. That's right. If you have a good record, You can get a great loan to take one of the REO houses off of the market and make it an income property, at the same time opening a rental to a family displaced buy the things that have happened over the last few years.I suppose that some training in investments and property management would go along with this program, maybe a mentor program for the borrowers.
  
• I picture the program as running for maybe two or three years, loans would be something like 30 yr. fixed due in 5, with economic triggers (inflation, prime rate, employment) that could push the date due back in say two year increments. So "WE" would get paid back as soon as the economy comes back.
  

Think it through, I think it rewards the right people and helps to stabilize the market at the same time. It is not just a band-aid but a real step to help fix the problems. Tell me what you think. Overly simple? Too complicated? What?