$700B is a lot of money. The Paulson Plan is ok, but we can do much, much better and solve this embarrassing mess for less.
Instead of hastily approving Paulson’s plan, the U.S. Government should offer a single simple guarantee that would provide direct relief to both home owners and mortgage holders. Distressed homeowners would be allowed to make partial payments and mortgages would continue to be paid promptly and in full.
Under my proposal, mortgage holders may choose to apply to the U.S. government on behalf of all of their eligible delinquent and defaulting debtors, thereby keeping those homes that make a partial payment out of foreclosure and maintaining bank liquidity.
The government’s maximum monthly liability per home should be reasonably limited, such as to be no more than one half of one percent of the lower of either the original mortgage principal or the prevailing conforming loan limit.
And there would be certain easy to follow rules and conditions:
- The guarantee would cover only owner-occupied homes, not investment and business properties.
- The mortgages must be held by U.S. accredited banks and other gov’t regulated entities on an approved list, to protect the U.S. taxpayer.
- The U.S. government would impose a special Federal Homeowner Bailout Tax and apply a Tax Lien against the property and pay that amount promptly to the lender.
- The federal tax lien, and ultimately taxpayers, would accumulate 7% annual interest on any amounts paid on behalf of a delinquent or defaulting mortgage.
- Since it’s a tax lien, when the home gets sold one day down the road, the government will be first in line to be paid.
This provides instant liquidity to mortgage holders.
This provides instant relief to home owners.
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