Tosh KeuneFebruary 24th, 2009 9:39 pm
Your explaination of the banks problem with foreclosure is right on point. If I were constructing such a bailout I'd suggest that you allow the bank to do two things. 1. If they adjust a Mortgage value they can restart the amortization schedule (it is at the beginning of an amortization when the banks make most money). 2. Unless the owner could show substantial financial challenges the bank could adjust the rate so the monthly payment remains the same. This could be overruled under some cases. The banks would be required to do one thing. They would be required to write down the mortgage to the same LTV as when the replaced mortgage was originated. If someone had a 95% mortgage on a 300K home now worth 200K they could request that their loan be written down to 190K but the rate gets adjusted to keep the PI at the same level as previously and the amortization schedule restarts.