An idea to help the foreclosure crisis : Rooftop Views

Rooftop Views

An idea to help the foreclosure crisis

The CMPS Institute has just sent Congress a detailed proposal calling for government-backed loans to homeowners of up to 20% of the homeowner’s current mortgage balance.”Negative homeowner equity is the one root problem that Congress can help solve,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. “If homeowners have no incentive to keep up their mortgage payments, the problems in the housing markets could continue to spread and plunge our country into a deep recession,” continued Nicholas.

This proposal was initially floated by economist Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan, professor at Harvard University and president/CEO of the National Bureau of Economic Research. “A voluntary loan-substitution program could reduce the number of defaults and dampen the decline in house prices - without violating contracts, bailing out lenders or borrowers, or increasing government spending,” said Feldstein, who helped review the comments sent to Congress by the CMPS Institute.

About 6% of all mortgage borrowers are behind on their payments, and 17% of all sub-prime borrowers are behind on their payments. Approximately 10% of all US mortgage borrowers owe more on their mortgages than the value of their homes, thus making their mortgages “unrefinanceable” for the most part.

“Some of the more aggressive proposals before Congress would drive the mortgage industry toward nationalization, while some of the more limited proposals would do little or nothing to solve the crisis,” Nicholas said.

“This entire situation can be greatly remedied by reducing homeowners’ mortgage balances to the point where they are no longer in a situation of little or no equity,” said Nicholas.

Doing so would give all homeowners incentives to keep up their mortgage payments as property values continue to stagnate or decline. Distressed homeowners would be empowered to refinance their otherwise “unrefinanceable” mortgages into more affordable loans without an increase in their overall debt level. Property values will stabilize, consumer confidence will rise to shore up the economy and taxpayers will avoid incurring unnecessary and excessive risk.