Congress’s bailout plan gives the Secretary of the Treasury the
authority to develop a plan to purchase mortgages from distressed homeowners,
but it stops short of establishing specific processes and guidelines for the
strategy to be implemented. We believe that the best solution would be for
financial institutions to actively re-write mortgages as 30-, 40- or 50-year
fixed-rate loans, as appropriate to the homeowner’s circumstances. Obviously,
significant eligibility criteria will need to be considered within such a plan
government funded mortgage programs can only do so much. Therefore, it is
in the country’s best interests that the public and private sectors collaborate
as to how an initiative like Home Sweet Home can be implemented. While
participation in the program will result in increased costs to consumers over
the lifetime of the loan, many homeowners would certainly be willing to pay more
in the long-term in exchange for financial stability today.
The lending industry has already witnessed the consumer’s willingness
to accept higher overall costs in exchange for lower monthly payments,
ironically enough through the wide popularity of both ARM and hybrid products.
The benefit of restructuring through this initiative is that government loans
would require the lower monthly payment to be locked in – allowing for
predictable budgets over the term of the loan. In addition, crystal clear
disclosures, an uncommon occurrence in today’s lending climate, would detail the
terms of the restructured loan in easily understandable language. Most
important, millions of Americans would be able to remain in their homes and
resume their place in the economic system as productive consumers.