Ben Bernanke spoke today before a group of community bankers in Orlando, Fla. He encouraged bankers to find creative ways to address the problems in the mortgage market. Preventing foreclosures, he implied, should be a priority as it would "help not only stressed borrowers but also their communities and, indeed, the broader economy."
Mr. Bernanke, here is my suggestion. Instead of banks reducing principal or instituting artificially low interest rates, why not have borrowers move into homes they can actually afford. If done in a coordinated manner, the process could cascade down from the most expensive homes to the least expensive. Essentially, everyone moves down a notch to a more reasonably sized home with a more affordable mortgage.
Those at the lowest end of the spectrum who, based on their financial condition, should never have become homeowners in the first place would be expected to return to the rental market.
This would keep the majority of troubled homeowners in a home of their own. It would keep the majority of homes occupied. It would protect most communities from a wave of foreclosure signs. The only downside would be those over-sized McMansions at the high end that may not be able to find purchasers as their over-extended owners trade down to an affordable house.
Instead of the government giving $150 billion away and hoping we all go to the mall, perhaps the money could better be spent to set up a program to help borrowers and banks make the arrangements necessary to carry out this process.
In the end, these homeowners would not end up with more house than they should ever have had by being bailed out by the government. I think this would make those of us who were prudent in buying our homes feel a little better about the fairness of the process.
- ► 2011 (40)
- ► 2010 (189)
- ► 2009 (312)
- Market internals continue to improve despite down ...
- Alert HQ for the week ending March 28, 2008
- Durable Goods report supports cautious stance on C...
- Durable goods - the case for shorting industrials ...
- Money left on the table - a cautionary tale
- Alert HQ - first list of stock picks based on week...
- IT makes a difference - look at Level 3
- Market internals improving - still not out of the ...
- Alert HQ for the week ending March 20, 2008
- Has the Fed ended the recession?
- Manufacturing - another area of weakness
- Market Statistics - indecision
- Alert HQ for the week ending March 14, 2008
- Bear Stearns situation is bad - will things get wo...
- Flash memory prices pressure chip manufacturers
- Why Yahoo is worth buying
- Market Statistics - more deterioration
- Alert HQ for the week ending March 7, 2008
- Citi's Levkovich - buy banks now!
- Allis-Chalmers post-earnings update
- Last minute rally but breadth is weak, support jus...
- Merrill Lynch - profits decelerate as market leade...
- My solution to the mortgage mess
- Weekly Market Update and comments on Alert HQ stoc...
- Alert HQ for the week ending Feb 29, 2008
- ▼ March (25)
- ► 2007 (200)
|Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.|