How to Stop Foreclosure and Keep People in Their Homes
Article By: Ryan Wiseman
These 11 policy ideas, if enacted, could greatly reduce the possibility of people, homeowners, losing their homes, and protect lenders too. These ideas could allow people to keep their homes through hard times, and allow people to keep their dignity if they had to leave their homes.
If these ideas are practiced, homelessness could be greatly reduced or eliminated, people would stop losing their home to the bank, people who do need to give up their homes could do it with dignity and in a way that helps them get back on their feet, while at the same time, helps the lending institutions and banks continue to make income without hurting people too much, allow our economy to become more stable, keep foreclosure sales from reducing the real-value of other real estate when assessments are made, and greatly reduce the possibility of real estate bubbles. In fact, there is the probably that these policies could do even more than the things just mentioned.
With this in mind, let me share with you these 11 ideas:
1. Add an extra six months to a loan schedule as free months – in other words, if someone has a 30-year, or 360 month loan, give them 366 months to pay off that loan. These extra months would be used if the homeowner ever has financial issues that keep them from paying their mortgage. Of course, this type of setup would require the homeowner to let their lender know that they plan to do this.
2. Create a back-up mortgage payment fund. Homeowners could be required to create a special account with whatever banking institution the homeowner used to finance their home. Homeowners could then be required to put a little money into this account each month, which allows them to have a backup emergency reserve to help pay for their mortgage when difficulties arise, such as one losing their job, or unexpected medical bills. This would allow a homeowner to stay caught up on his monthly payments and not get behind.
3. Require that, on top of the first two items above, that every time a loan is given to a homeowner by a lending company, that they receive not only the cost to pay for the home, but also an extra amount that adds up to 6-months of mortgage payments, with this extra amount going to the back-up mortgage payment fund. Please note that any extra costs to homeowners by carrying out this scenario could be offset by lowering the interest rate used by the Federal Reserve to banks, and the banks that borrow money from the FED.
4. Convert the Private Mortgage Insurance into an extra payment that puts more money into the back-up mortgage fund.
5. Require that all mortgage payments be done on a bi-weekly basis, rather than once per month, so that the equivalent of that extra payment be put into the person’s back-up payment fund until the person has the equivalent of 2-years-worth of payments in that back-up account. After this happens, the homeowner would then revert to the monthly payment plan, unless they want to continue paying for their mortgage using the bi-weekly payment schedule.
6. Have a variable-payment plan for salespeople, business owners, and other people who have incomes that vary based on the times of the year, and the amount of sales and revenue that come in per month. Under this plan, the homeowner would be required to have their personal banking accounts with the same bank who lent them the money to purchase their home; they could not have any other personal bank accounts. That bank would automatically take a certain percentage of the money that showed up in their account, as monthly payment for their mortgage. Some months would show a higher payment, and other months a lower payment to help pay down their mortgage. Every 5 years, their debt would be re-assessed, and the homeowner would learn how much money they still owe on their house. This type of system would allow the homeowner to stay in their home, and allow the bank to collect extra income in the form of interest if the payments were less than expected.
7. If a person can’t make their monthly mortgage payments, instead of having a foreclosure where the people are evicted, putting strain on that family, as well as the banking institution that provided the loan to the homeowner, allow that person, and their family, to stay in the home until it gets resold to someone else. To make this plan work, you need to have two other policies in place. First, if the original homeowner has taken care of the home and it is still in good condition when sold to another buyer, he/she will be given a moving amount of about $5,000 to leave the premises. This ensures that someone is taking care of the property, which reduces upkeep costs for the bank, allows the bank to get their money back, and allows the former homeowner to leave with their dignity intact and some money to get reestablished elsewhere. Secondly, the original homeowner will be required to get some kind of job, even if it is one he/she doesn’t like, and have a portion of their wages garnished to make monthly payments to the bank – this setup would appear on the homeowner’s credit record not as a bad credit, but as someone who has consistently made monthly payments.
8. Self short-sale to actual homeowner is a possibility. Lending institutions would have some incentives to refinance the home to the actual homeowner for less than the home is worth. This would be set up to allow homeowners to have much lower monthly payments that are more affordable to the person, if they change to a lower-paying job, and allow the lending institution to make any lost money back by extending the length of the mortgage schedule.
9. Using a back-up reverse mortgage plan. In other words, if a person has some equity in their home, they would be able to make payments using their equity, in case of last resort. For example: a person’s home is worth $150,000, they owe $120,000 on their home, with $1000 monthly payments. With an equity of $30,000, they would be able to make the equivalent of 30 payments on their monthly mortgage using their equity. In other words, using equity as payment would be equivalent to the principal and interest owed each month. The benefit to the homeowner would be that they would still be able to keep their home, although they would now owe a lot more money to the bank. The benefit to the bank would be that they would be able to receive extra income, in the long run, by doing this.
10. Lending institutions should have recruiters that help their customers get higher-paying jobs, or get another job if they lost one. Many banks think this is a waste of money, but it really isn’t. This can be the difference between a bank making money or losing money – by making sure their customers have the jobs in place to make the incomes they need to keep making their monthly payments.
11. Over the course of 30 years, legally lower the maximum length of a home mortgage from 30 years to 15 years, while at the same time, incrementally lowering the maximum amount that can be lowered for housing purposes, so that after 30 years, the only amount that could be loaned is for starter houses. That is, at the beginning, no mortgage could be lent with a payment schedule over 30 years, and every six months, that amount would be lowered by 6 months. The benefit of this plan would be that after 30 years, the ‘nominal value’ of the home would continue to increase, albeit very slowly, whereas the ‘real value’ of the home would actually decrease over time, so that the cost of housing would be 30%, or even only 20% of a person’s income, rather than 40%-60%. This would allow people to have a better quality of life, as they would not have to work so hard to have housing, while at the same time, allow people to have a higher level of discretionary income that could go to savings, and for opening up and expanding secondary and tertiary sectors of the economy as people have more time and money to develop their hobbies and interests.
With these policies in place, if a homeowner was going through some financial difficulty, they would go through the following scenario: First, the money in their back-up mortgage payment fund would be used to pay for their monthly payments; secondly the person would use up their 6 free months; thirdly, the person would use their equity to pay for their monthly payment or refinance using a self short-sale. If they still don’t have some income to keep paying for their housing, then they would go through the process of waiting for the house to be sold to a new owner. By this time, though, it would probably be more than 2-5 years later, and there is no reason why someone couldn’t get some kind of job by then, even if the new job requires 2 years of training in a new field.
So, do you like these policy ideas? I personally believe that these kind of policy changes would be a benefit to our country and its people, as well as the lending institutions. It would also help reduce the possibility of real estate bubbles. If you like these ideas, share this page with others, and let your political leaders know that you want them to make a change. Perhaps you can even start a petition with the White House!
Share this article: