The Fabulous 00s: Chess Players Need a House, Too

Fixing the Foreclosure Mess

I thought of this in a dream last night.  I present it for curiousity’s sake and also it can’t be worse than government current approaches!   If I get economist wizard GM Ken Rogoff approval, you know the idea has wings.

Let’s take the common situation of a middle-class family whose net income has dropped sharply.  Let’s say they have a mortgage (could be 100K, 200K, 300K, for example; for the terms let’s take a standard 30 year fixed mortgage to simplify the discussion) and the monthly payment is now a whopping 75% of their combined net income.  They are in danger of default and foreclosure since they also need basic essentials.  Government consumer guidelines recommend that one’s monthly payments be in the 28-31% range. Up until now, the government has been throwing money at banks, hoping they will loosen credit and modify loans.  This makes no business sense for the banks.  It also has amounted to an incredible waste of money on the part of the government.  There is little sense of where the money went and what it was used for.

Drop an Anvil to Stop the Tornado

To avert the danger of the “tornado” blowing away “Dorothy’s House”, what the government should do instead of tossing bailout money blindly  is “drop an anvil” by purchasing a partial passive investment on the house to reduce the monthly payment to government guidelines of 28-31% of net income.  The government passive investment (can imagine charging some modest interest rate here, of course) is recouped when

a) house is sold, or

b) net income increases again, or

c) windfall income such as inheritance, or

d) (can imagine other situations here too).

This is by far the most efficient way to curtail the tidal wave of foreclosures.

I would stress this program is NOT AVAILABLE to families that live in mansions far beyond their means and needs (a common situation in Arizona where a small family has an 4,000 sq. ft. (and larger!) “McMansion>”)  Those families are ineligible, need to (and should!) sell at a loss and move into a much smaller home and “get real.”

In the respect my idea is superior to Time.Com’s Ari J. Officer when he proposes a brute-force reduction of EVERYONE’S mortgage principal to 70% of its original value. I don’t buy that.  I don’t want a giveaway, for one, and I don’t want to reward irrational mansion dwellers.   The government’s stake in my proposal remains the government’s.

The beauty of this solution is that it’s highly quantifiable and as an investment strategy, we have clear balance sheet measures.  It’s not a blind shoveling of money at a problem.  What say you, the reader?

Where the Government Seems to be Heading

As of Friday the 13th (!) the new “plan” seems to be to subsidize the payments of those in trouble.  Bad idea, because it’s a bad investment!  The passive investment stake outlined above gives the government a far more concrete and measurable course of action.  Subsidies are just money down the drain (as with the early bank bailouts of the Bush administration).

Postscript

It’s pretty clear the average consumer has no inkling of the risks involved in ARM (adjustable rate) mortgages.  The government could consider a mandatory conversion of all ARMs to fixed-rate and impose strong regulations on this single type of mortgage.

And for Something Unrelated

Does anyone know what this image is?  And where it is?

lubb

The “Lubber” (Sculpture Work)

And where is this Prive salon ad?  This is one of those intense Elizabeth Vicary style model ads.

Prive Salone

Prive Salon

I saw some similiarity to the intense expression in the next picture (maybe it’s just me).

The Vick

The Vick

So, does anyone know where Lubber resides? 

Advertisements

Tags: , , , , , , , ,

6 Responses to “The Fabulous 00s: Chess Players Need a House, Too”

  1. Anthony Boron Says:

    I say it doesn’t have a chance in he77. Why ? Makes too much sense.

    Seriously it is a nice meld of the “give the money to the folks directly”, and the giving of the money to the banks.

    However, what do you propose to do for those who are mortgage free or have mortgages lower than your ~30% ?

    The program is to reduce mortgage payments from the foreclosure danger zone e.g. 60% plus to the government guidelines of 28-31% or lower. It wouldn’t be needed for the cases you give above. Hopefully from the government point of views there are many “triggers” over time that recoup the passive partial investment. This is the crux of the matter that needs to be measured.

  2. Anthony Boron Says:

    “It wouldn’t be needed…”
    Well, I would be (I am Canadian so really it is N/A to me) ticked to be excluded just because I was prudent in borrowing within my means and/or having paid off my debt.

    You are not worse off being excluded because the government is not giving the other party money. The passive partial investment in all cases (until it is liquidated) remains the government’s. The problem with a government plan to subsidize payments is that this is an incentive to continue in a lower income bracket and accept subsidies.

  3. Anthony Boron Says:

    I didn’t say I would be worse off, I said I would be ticked off !

    A) Because I will perceive that I am not being treated fairly (whether it is fair or not is not relevant to my tickoffedness – I perceive it not to be)

    To be fair the government could buy a portion of my fully paid off home.
    I get to do what I want with the money.

    We have to worry about the total sum of money in all proposals. If we assign some absurd number in the billions (which we don’t have anyway) we have to work within the assignment. At any rate, it should be easy enough to form a panel to prioritize and/or exclude mortgages on a case by case basis. The more cases we can exclude, the more money we save (possibly a moot point because there is so much waste directed at, e.g., the auto industry). Mandatory ARM to fixed also seems reasonable in order to do an apples-to-apples comparison.

  4. Elizabeth Vicary Says:

    what are you talking about?

    Similarities qualitatively detected to your psychedelic Facebook offerings.

  5. Elizabeth Vicary Says:

    oh, i see

  6. Polly Says:

    It llooks like a wine barrel made in the shape of a sphere. Judging from the signage in the background, it appears to be residing at some airport. I just can’t tell which one.

    Red oak and cast iron hooks. Looks like a bomb! Albany NY.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: