Homeowner Bailout Frustration

I am going to take a stab at NOT complaining about a supplier.  This is a bit of a complaint entry, but I do suggest a solution so not so much…

Generally I feel very badly for homeowners who have gotten themselves into an upside-down mortgage that they can’t pay for.  I don’t actually know anyone in that situation – at least I don’t know that I know anyone.  It has got to be a highly frustrating situation, particularly if it was due to predatory lending practices.

That said, when I hear a politician saying he wants to buy up mortgages and turn mortgages right-side-up at the expense of taxpayers (presumably), this gets my dander up.  I have taken great pains to maintain my financial reputation, and what this politician is basically saying – on the surface at least – is that “he” wants to punish people like me by making me pay to help get people in these upside-down mortgages out of their troubled situation.

It is NOT that I wish to see these folks go bankrupt, or lose their home in any other way.  I don’t.  I believe in home ownership.

In the process of considering this problem, I came up with an idea that I would like to share.  I don’t imagine it is original, but I haven’t heard it suggested so I will share it as if it were original with this caveat.  What I would suggest we do is buy up these mortgages as suggested, and in the process of adjusting the value of the mortgages we should take an ownership stake in each of these homes equal to the % of the mortgage value that we forgive.  When the home is sold, the government organization who holds the stake would be paid that % of the home value as repayment.  The homeowner could also buy the subject stake at any point under the same terms based upon a mutually agreed appraisal.

I used to think we should try to distinguish between “flippers” and homeowners interested in long-term ownership in this discussion.  It may be worth considering including all cases given the above scenario, but priority should be given to more traditional homeowners hoping to accomplish long term home ownership.

One other thing that bothers me is homeowners who get in a situation where they must default on their mortgage and then go in and destroy their property so that the lender or another entity does not benefit from their misfortune.  I have a hard time identifying with this mindset (and definitely do NOT agree with it).  My point is that if we bail out a given homeowner and take an ownership stake and the homeowner has to subsequently default AND destroys property, this would be a felony criminal action and so the whole process would discourage this behavior.  As far as I know, there is nothing – aside from ethics and good common sense – that currently prevents a homeowner from engaging in this behavior.