Stabilizing housing prices is widely accepted by most economists as the best way to solve the lingering recession and potential depression. Using the same $700 billion dollars, most of the current and pending foreclosures in the country could be avoided utilizing more practical rather than political strategies. If the past is prologue, by funding a Homeowners Refinance Act, similar to the one used during the Great Depression, we could multiply the effectiveness of the current Bailout Plan. However, this time mortgages could be made to homeowner’s in a subordinate lien position.

For example, banks could be given a profitable alternative to foreclosure by modifying the amount of their nonperforming mortgages to 80% of the properties current value with a new manageable fixed rate and payment terms. The incentive would be realized by distributing a 10% cash payoff to any existing lien holders in exchange for a 20% lien on the homeowner’s property. As a former mortgage and real estate broker that currently negotiates discounted mortgage payoffs, I can confidently say that most banks would prefer this strategy to foreclosure.

Simultaneously attacking the growing surplus of available homes, similar lending standards could be available to individuals interested in purchasing a home. The underlining political dilemma of making this “bailout” fair and profitable could be presented in the following manner: Participating individuals would lose their ability to receive tax credits for the interest paid towards their primary mortgage. Instead, that amount would be credited towards the 20% lien held by the government. With the average mortgage being less than $250,000, over 20 million homes could be saved or purchased using the same $700 billion. Systematically, this would significantly lower mortgage payments, increasing household cash flow, thus directly stimulating the economy through more consumer buying power.

Increasing real buying power as opposed to the borrowing power that some economic strategist call “tackling the credit freeze”, is a better long-term approach to maintaining a productive economy.

After acknowledging that the major investment banks who masked these mortgage-backed securities for so many years have either failed or converted to more regulated entities, the inappropriately inflated investor confidence is the only other major intangible deficiency plaguing the current financial crisis. The Bailout appears to be more focused on re-inflating that confidence than dealing with the catalyst causing the deflation. By identifying better alternatives, it is fair to say that the timing, magnitude and methodology of the Bailout Plan do not proportionately reflect its intended objective of immediately stabilizing the economy.

Makes for a good read about Quicken Loans.

The final thing about his plan that strikes me as odd or wrong. He proposes three types of mortgages. The first one is ARM’s with no cap. I’m a mortgage broker and I’m not aware of any ARM’s that I can sell from banks that don’t have caps. If I’m wrong on this please let me know.

To have no cap it must be a private party or owner carry. Then it gets back to the moral hazzard issue.

The specific malpractice I’m referring to is the deliberate misinterpretation of the so-called “General Welfare” clause in the Constitution. Most Americans are completely unaware of the fact that the highest law in the land– the law upon which all others rest– is The Constitution. And that most of what Congress does today– including the “social programs” spending that comprises 65% of the multi-trillion dollar Federal Budget– is NOT AUTHORIZED by the Constitution.

We got these programs, bailouts, individual & corporate welfare, and myriad other spending and spending proposals because the Court once upon a time for political expediency liberally interpreted the words “general welfare” broadly and without regard for their original intent / meaning.

James Madison, the undisputed “Father of The Constitution” had this to say concerning “general welfare”: “With respect to the two words “general welfare,” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators. If the words obtained so readily a place in the “Articles of Confederation,” and received so little notice in their admission into the present Constitution, and retained for so long a time a silent place in both, the fairest explanation is, that the words, in the alternative of meaning nothing or meaning everything, had the former meaning taken for granted.”

and, In 1794, when Congress appropriated $15,000 for relief of French refugees who fled from insurrection in San Domingo to Baltimore and Philadelphia, James Madison stood on the floor of the House to object saying, “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.”

AND…

“Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated.”

With this bailout the only truly free nation on earth has capitulated. The worst part is that we traded our Constitution for a solution that isn’t even going to work. Global hyper-inflation is next. Total economic collapse follows that.

a) Bails out home owners in default– 70% of whom LIED on their application to get the loan, and 5 million of whom are in this country ILLEGALLY and thus committed document fraud, identity theft, or some degree of both in conjunction with mortgage fraud to obtain loans.

b) Bails out lenders who made the aforementioned loans

c) Bails out share owners of the above who during the good times counted their private profit gain and who now want to socialize their losses.

d) Bails out financial institutions that purchased mortgage backed securities, derivatives, and other instruments backed by shaky loans

e) Relieves retirees who blindly trusted others with their money, and who should be paying closer attention

f) Shifts the focus from those responsible.

The aforementioned plan does all of the above. In short, there’s absolutely NO justification for using the Treasury of the United States to fix this. Sooner or later we’re going to eat this. This trillion dollar tinkering is just kicking the can down the road. The next big bankruptcies are Social Security and Medicare. The government has been borrowing from these programs for years– using the borrowed funds to mask the true size of the Federal Deficit and debt. Forgive me if I find this proposal as self-serving as the other government bailout ideas.

This would cost the taxpayers nothing, and could be offered to all mortgage holders and homebuyers as a new product.

Can I have a spa treatment?

They were giving out loans like candy to kids at the store. Now, here we are. The best part is that the people that got us into trouble, including the gov., are now trying to fix it. Interesting?

The worst part about all of this is that real estate investors and agents have an extremely hard time gaining trust and credibility from people. The past few years have ruined it for them.

I wrote a post on my blog about it and created a contest to help each other out. People have been commenting on it and coming up with some great ways to improve credibility and trust. The contest ends tonight but the prize is still there.

Peter