I am so sick and tired of the lame efforts of our government to solve our financial crisis. The answer to the problem has always been obvious to many, but not to those in Washington who confuse our current problems with political agendas (like social engineering).

To solve our problems, we first have to fix what started the problem: the housing crisis. There has been too little done to solve this problem. President Obama’s feeble proposal to provide principal write-downs (bank "cram downs") for a very small class of home owner, is much too little and too focused on a niche that most people consider unworthy: those that either defrauded their lenders through "liar loans" with no down payment, or those who were more innocently convinced to commit to an investment, a home, they could never have afforded.

 The $8000 one-time, first time home buyer subsidy is not much more well thought out. Very few people in a position to be a first time buyer can now afford it, as the younger people who mostly comprise this set are having a hard time getting or keeping jobs.  Those that need the subsidy most, homeowners trying to get above water on their existing mortgage, aren't allowed to use this incentive, even if it would help unjam the home sales industry.

Here is a very simple proposal to fix the housing crisis, which will then fix the banking crisis and after that, the consumption crisis:

1. Create a government sponsored entity that will be able to take a stake in homes that are now under-water or in foreclosure. Fund that entity with unlimited funds to buy positions in such stressed homes: to buy down the principal to less than the market price. The mortgage industry can be used to implement the program, so no need for a huge new govermental department, only a few hundred people to administer the assets and monitor the mortgage companies. The funding will come from Treasury and be a few trillion, but as a loan, not as a transfer, requiring no new taxes.
2. Create a 4%, 40 year mortgage available to EVERY American (not the chosen few who are deemed needy by our liberal left government). This will pass the fairness test with taxpayers and will therefore gain majority support. This mortgage should be fairly liberal where credit worthiness (650 FICO) and equity (10% Down) are concerned to address the distance home prices have fallen
3. Every homeowner that is underwater on their mortgage, in default or foreclosure proceedings should then be offered the opportunity to receive a principal infusion from the national fund, at nominal interest (maybe 2% APR). The interest can be added back to the balance each year (negative amortizing). And this principal infusion will come with a lien against the property that must be resolved at the time of sale of the property. If the property sale price does not cover the principal balance, the remainder goes with the property to the next owner as a "cloud" on the title (unlike upaid property tax liens, this one will not have to be repaid to transfer title). The lien will be filed in the governing jurisdiction (state or county) as any lien would be, such as failure to pay property tax.
4. Once a home has received funds to bring down the principal to at least 90% of the appraised home value, a mortgage from the national program can be written at 4% which will provide very reasonable monthly payments, freeing up income for consumption. There is little chance of the home value continuing to decline if this program is implemented nationally and is available to everyone. The mortgage program will also be available to people moving up to a new home, so will create demand and get the home selling machinery working again.
5. The banks holding the “toxic mortgages” will suddenly find those mortgages no longer toxic as the defaults are instantly stopped. The value of bank assets will immediately be written up which will save the banking system and eliminate the need for any more bank rescues. Banks having taken money from TARP and TAF, will be able to repay the borrowing further helping the deficit.
6. The money suddenly available for consumption, home repair or updating, will put money into the hardest hit industries and stop the rise in unemployment.
7. The Federal government will hold the fund that provided the money to buy down mortgage principal for up to 40 years, at which time, the government will be made whole costing tax payers no more money.

So easy…yet so difficult for those who have more complex agendas on their minds.

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