There’s an interesting article in the Huffington Post, which suggests a unique (well not so unique) solution to the foreclosure crisis.
The author said:
“Let’s have a federal bill that states that any bank that took a bailout loan and hasn’t paid it back yet isn’t permitted to foreclose on anybody’s primary residence. In addition, bonuses for senior officers at lending institutions will be reduced by a factor tied to its foreclosure record for that year. High rate of foreclosures would mean low bonuses. At the same time, institutions that refrain from foreclosing on people’s homes would be granted tax abatements on their profits indexed to the amount they are putting at risk by allowing homeowners to renegotiate their loans and remain in their residences.”
And what would we require of homeowners facing foreclosure?
“Of course, passage of such a law would also involve responsibilities on the part of defaulting borrowers. For instance, no resident would be permitted to simply walk away from a house simply because its market value had fallen 10% below the size of its mortgage. That seems to be happening all over the place right now. That’s not good. Lenders have rights, too.”
Aha! The devil is in the details! On the surface this seems like a “fair” deal. Banks would get rewarded for helping homeowners stop foreclosure and would be prohibited from using foreclosure if they took out a bailout loan and haven’t paid back the money. However, if anyone has been watching closely, some banks have already taken steps to repay the bailout loans because of legislation or suggestions such as the one above. Every time the government steps up to point out the fact that banks have taken taxpayer money while at the same time foreclosing on the same taxpayers, the banks run to make a payment on those bailout loans. How ironic.
The other problem with this writer’s suggestions is that it would prohibit homeowners from taking the only action they can at this point to fight back when all else fails–walk away, usually through bankruptcy. At the end of the day the Huffington Post writer is taking a round about way to solve the foreclosure crisis, instead of a simple way which is to force lenders and servicers to modify the toxic mortgages of homeowners facing foreclosure while allowing homeowners an out when lenders/servicers don’t play fair via bankruptcy. At this point everyone is aware of the fact that many of these mortgages were not affordable to begin with.
These homeowners facing foreclosure depended on the goodwill of the mortgage industry to give them mortgages that were at least fair and reasonable; but the mortgage industry failed to do that and in turn played a heavy hand in creating this foreclosure crisis. It’s their duty to fix it!