RebelCapitalist: Financial Information for the Rest of Us | We Need More than Principal Reduction

We Need More than Principal Reduction

Jan 18, 2010 | By: Mr_Blue | Tags: financial crisis, mortgage crisis, mortgage, corporate welfare, principal reduction, denmark

The biggest problem with the housing market is “negative equity”. This where people owe more on their mortgage than what the value of their home is worth. Negative equity is a major reason for people to default on their mortgage and for people to simply “walk away” from a mortgage and home.

We need to address this issue directly instead of the current programs which only address the size of the mortgage payment by manipulating mortgage rates and term of mortgages. Addressing the issue ‘negative equity’ more directly will require that the financial conglomerates and financial sector to share in the pain of a problem that it largely created. The following are proposals to address the mortgage crisis:

1) For those we have remained current on mortgage payments - mortgage principal reduction to eliminate ‘negative equity.’ The amount of principal reduction would be based on average price levels and mortgages according to census tracts or other geographic characteristic.

2) Own to Rent as proposed by Dean Baker. For those in process of foreclosure or at risk of foreclosure, the former homeowner should be given the option of staying in the home and pay a fair market rent.

3) Create a much less complex home mortgage finance system similar to one in Denmark.

It is way past time to start providing support to the foundation of our economy - people and families. The current policies only support the financial sector and financial conglomerates. Our government, instead of helping the rest of the country and our economy, chooses to support the financial sector/conglomerates who choose to horde their welfare payments and welfare subsidies.

Good luck.