A different bailout

Oct 02, 2008 23:34

I recently read 'Trillion dollar meltdown' a book about the current financial crisis ( Read more... )

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Re: Is it just the type of loan that's the issue? (I don't think so) elizilla October 3 2008, 14:40:32 UTC
The problem with changing from a 30 year loan to a 50 year loan, is that it hardly drops the payments at all. At 30 years, the first payment is already almost all interest - only about $20 or $30 goes to the principal. If you extend the loan to 50 years, the payment might only drop by five or ten dollars.

The other problem is that with the declining house prices, many people are "upside down" on their mortgages. Ie: They bought a $200,000 house, financed $195,000, and now the house is worth $150,000. They have negative equity. What incentive is there for them not to just walk away and let the bank take that house?

I would say, though, that if the taxpayers are going to take the hit for this, I'd rather see it go to the home owner.

Heck, convert the loan to a 30 year fixed, write down the principal to whatever the current value of the home is, and offer the person the chance to stay in the house with this new loan. Pay the difference to the banks, so they are no longer holding the "toxic paper". If/when they sell the place, the taxpayer gets some share of whatever equity they pull out of it after paying off the loan. Maybe set some requirements, that the home owner has to live there and keep making payments for X number of years, and have some sort of penalty if they don't.

I'd limit it to owner-occupied homes, and not offer it to "flippers".

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Re: Is it just the type of loan that's the issue? (I don't think so) elizilla October 3 2008, 15:17:53 UTC
"The problem with changing from a 30 year loan to a 50 year loan, is that it hardly drops the payments at all. At 30 years, the first payment is already almost all interest - only about $20 or $30 goes to the principal. If you extend the loan to 50 years, the payment might only drop by five or ten dollars."

Good point - I forgot about basic math there for a while. Sorry about that.

"Heck, convert the loan to a 30 year fixed, write down the principal to whatever the current value of the home is, and offer the person the chance to stay in the house with this new loan. Pay the difference to the banks, so they are no longer holding the "toxic paper". If/when they sell the place, the taxpayer gets some share of whatever equity they pull out of it after paying off the loan. Maybe set some requirements, that the home owner has to live there and keep making payments for X number of years, and have some sort of penalty if they don't.

I'd limit it to owner-occupied homes, and not offer it to "flippers"."

This get's my vote - it addresses the problem I saw with Erik's initial proposal (unless I missed something). AND it's far simpler than my over-complicated approach.

Besides, you ride a V-Strom which everyone knows is FAR BETTER than any bike Erik rides... ;-)

John H,

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Re: Is it just the type of loan that's the issue? (I don't think so) elizilla October 3 2008, 17:10:38 UTC
Don't even get me started on V-Stroms. Unless, of course, you want to buy this one, so I can buy another 20 year old Honda and reduce the amount of wrenching I have to do regularly just to keep the darn thing streeted.

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