Foreclosure prevention stalled by administration bickering

The Mortgage Bankers Association reports that one in ten American one-to-four-family homes are at least one-month delinquent on their mortgages, or in foreclosure.  This number sets a new record for the MBA survey which has been around for more than 40 years.

Even prime rate loans are having trouble, with almost 6% delinquent or in foreclosure.  But the rate of problems with subprime mortgages is an incredible one in three!  And the outlook is for even higher numbers in 2009.

Meanwhile, back in Washington, the Bush people are busy bailing out the banks and auto companies.  They talk about the mortgage disaster, but according to the Wall Street Journal they cannot agree on what to do!

The things under consideration include having the government buy the delinquent mortgages and refinance them, a method of encouraging banks to lower interest rates, and a loan-guarantee plan created by the FDIC, the organization that insures bank deposits.

I still think the best idea is to let bankruptcy courts “cram down” principle amounts on mortgage loans to as little as 90% of current market value and fix interest rates to a percent corresponding to the current 30-year fixed rate.  No voluntary plan has worked so far.  The lenders are not cooperating.  This plan will give them their day in court with a definite result.  If the borrower cannot make even reduced payments, the court will let the lender foreclose.  But if a plan can be formed that will work, the borrower gets to stay in their home and the lender gets a mortgage that will be paid off.

Bankruptcy courts do this every day.  They take the whole picture into account.  They can process these claims quickly and efficiently.   And no one files bankruptcy easily.  It costs money and ruins your credit for years.

Onsite Articles: Read about how to Avoid Foreclosure at AskJackAboutDebt.

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