How To Fix The Economy

Today's unemployment report added fuel to the fire. 6.7% of people are out of work, but that figure should be higher because there are plenty out there who have given up on finding jobs. The economy is only going to get worse unless something is done, but the way our government is going about this is all wrong. Their so-called TRAP program is only making matters worse because is not helping the real cause of the problem: people who can't afford their mortgage payments and are jobless.

In order to fix this problem there is a simple and effective solution. Instead of giving the $750 billion to banks or buying up bad mortgages, they should use the money on the American people. After all, it's our tax dollars being used!

Here is what they "should have" done:

1. People who are upside down on their primary residences are given a non-qualifying loan (no income or credit) through an FHA approved Lender (a different one then the current Lender) at 90% of the home's current value (much like a FHA Streamline Refinance). There should not be a cap on the loan amount nor should there be restrictions on the property type (i.e. condos).

2. Two appraisals would be done on the property and the average would be used to determine value.

3. The loan would be a 30 year fixed rate including escrows and mortgage insurance at the current FHA MIP amount.

4. The Lender being paid off would receive payment for the amount of forgiven mortgage debt from the government. They would only receive principal, not any owed back payments. Back payments would have to be taken as a loss and no 1099c or judgment could be issue to the borrower.

5. Borrowers would agree that when they eventually sell the property that the proceeds from the sale be divided as follows: the amount of the forgiven debt be paid back to the government and then 50% of the remaining proceeds be paid to the government.

For example: A borrower owes $200,000 on his home which is currently worth $150,000. They would get a new mortgage at 90% of the current home's value for $135,000. A couple of years later (maybe longer), they sell the property for $210,000 for a profit of $75,000. The first $65,000 would be paid back to the government for the amount of original mortgage forgiven and then an extra $5,000 for the left over profit. I'm not counting closing costs into this figure, but they would be considered as well.

6. People who are not upside down on their homes should be given a hefty tax break (like paying no taxes) for 2 years or be able to get money to payoff existing consumer debt. If they are given money to payoff consumer debt, then the amount given would be paid back to the government from the proceeds of the sale of their home.

7. Banks from here on would be regulated where they are only allowed to fund Conforming, FHA or VA loans. Any ALT-A or Non-Conforming loans are left to the Hedge Funds or Private Investors. Banks would not be allowed to purchase any companies who fund ALT-A or Non-Conforming loans (this is what got us into the banking mess). These two spectrums of mortgage lending must be separated.

Why would this work...

1. The current Lender would be paid the full principal owed to them. This would prevent them from taking a hugh loss on the books. Yes, the would incur some loss from the back payments, but they wouldn't be in the mess they are now.

2. The current bad mortgages would be paid off an new mortgages would be issued.

3. People would not feel like just walking away from their properties. This would also lower their mortgage payments and the money saved can be used to pay down their consumer debt.

4. Our tax dollars would be used on helping us and the companies together.

5. Lower mortgage payments and lower consumer debt would free up extra cash which would help put money in the economy and there would be less job lost.

Do you not agree? It's amazing that the idiots in Washington didn't consider this when coming up with their brilliant plan. I wish I was high up in government and hopefully I would have been able to get this idea heard, but I'm not.

Do me a favor and see that this idea gets heard by the right people as there still might be time to fix this mess before it gets any worse.