Housing: The one bailout America could really use

[Mike Andrews]

Has anyone else read this?

Housing: The one bailout America could really use

Definitely interesting. From the article:

"On top of the 2.5 million homes that have already fallen to foreclosure since the bubble burst, another 4.5 million mortgage holders have given up paying and are likely to lose their homes, she calculates.
'Shareholders of the world unite'

Millions more are underwater -- owing more than their home is worth -- and may give up if things don't improve soon. All told, Goodman warns that more than 10 million of the nation's 55 million mortgage holders could default by 2018."

Anyone have any thoughts on how likely this is? I know there are a lot of BofA homeowners that have stopped paying because of the lawsuits, etc., but this number seems a little crazy.

[Jon Holdman]

I fixed your link.

I have fundamental issues with the idea that underwater borrowers should be given a break. What about the buyer who paid cash or put in a big down payment? They have suffered the same loss, but they don't get any break because they're not underwater? Sorry, that's boloney.

What she's really arguing is that the lenders should do principle writedowns because that will, in many cases, result in a smaller loss than going to foreclosure. OK, that may be true. But the borrower did BORROW AND SPEND a big chunk of money. They're not going to pay it back. They take a hit, just like the guy that didn't borrow but did spend is going to take a hit.

Now, I do like her idea of shared appreciation mortgages. Structure it as "here's a new mortgage for a lower amount. If you sell, though, you owe us some chunk of money. You owe us the entire gain up to some XX amount (say, half the amount the principle was reduced) and then you owe use 50% of all gains after that." The XX amount could be reduced over time, say 10 years.