Tell me what you think

Tell me what you think.

Lenders kept making loans into an inflationary spiral. They knew that eventually that bubble had to pop. They didn’t care as long as the prices kept going up. If a loan went bad, they could get out whole, maybe even MAKE money. They knew that they were financing homes at multiples of the cost to construct. They were allowing the price of land to be financed at increasingly growing prices. I know that a piece of land is worth what someone is willing to pay for it, but at some point the rate of escalation of prices had to be addressed.

Well, finally the bubble burst. Values collapsed. Home owners were facing loans that far exceeded the devalued price of their homes. Loans were defaulting at an alarming rate. The banks came to the Government to ask for help with the huge inventory of loans that had questionable value. The Senate isn’t the most astute of financial gurus. They knew that something needed to be done, but I don’t think that they knew, or still know what to do. Huge gobs of money were thrown to the Banks with little guidance or restriction. Banks have been using that money to acquire other banks, but money still doesn’t seem to be being lent. And the homeowner is still asking what can be done for them!

I was thinking. What if the Government looked at each homeowner with an upside down loan? What if they calculated the cost to construct that home and added 35% for the value of the land. In my estimation there are very few pieces of dirt that are worth the astronomical prices that were being charged. A new loan could be made for 100% of the cost to construct that house plus 35% for the land. That loan would finance the new closing costs, so the borrower would not be asked to come up with any money. The lender that made that old, inflated loan would be instructed to accept as payment in full the net proceeds of the new loan and would be told to charge off the excess balance remaining on the old loan. They should have known better than to make these loans in a “feeding frenzy”. They were not looking at the long term health of their company, or the Country.
They should be given LOANS to supplement their needs for survival, but NOT be allowed to sell their portfolios of mortgage backed securities to the Government. They should have known better to make those loans!