A simple and reasonable bailout option from a regular guy....

It's a simple solution. But it addresses the housing market, wall street, and main street, while providing cash to banks to keep our credit markets fluid.


The proposal:
•Freeze and revert all mortgages back to their starter rate for 5 yrs. Slap on a prepay to prevent speculators or investors from benefitting. Note: Starter rate must coverage interest rate expense. Ie a 1% starter rate will not fly.
•Couple with planned interest rate increases for 2 yrs. .25% Per quarter. This will stem inflation and incentivize an immediate draw on credit for banks (to get in now before rates go up).
•A 3-5 yr prepayment penalty will prevent investors and speculators from benefitting.
•Hard prepays for all refinances and sales of non-owner occupied properties. Soft prepays for sales of owner occupied properties (ie no prepay).

Winners:

Banks: Loans pools are stabilized. Decreased loan revenues from lower coupon made up for by “bailout money.” The bill must be followed by extensive new regulatory oversight of the mortgage market.

Borrowers: Helps struggling borrowers stay in their homes by taking the rate and payment back to the starter rate. A 3-5 yrs prepayment penalty will prevent investors and speculators from benefitting. Hard prepays for all refinances and sales of non-owner occupied properties. Soft prepays for owner occupied properties (ie no prepay).

Real estate: Stems the bleeding and helps stabilize depreciating neighborhoods by catching borrowers before they spiral into delinquency.

Local revenues: Stabilized communities will maintain to generation an expected stream of property tax.

US citizens: No government ownership of mortgage loans.