Dear President Obama,
I have an idea that would help the housing sector. Think about how car dealers allow you to trade in your old car and add the amount you still owe to the loan for your new car. There are a lot of good people underwater in their mortgages, people who have been paying on time, are good credit risks, believe they have a moral obligation to pay the mortgage they agreed to, and are now stuck in their home because they don’t have the thousands of dollars in cash that they would need for a short sale. Help them! Construct a program that would allow them to sell their home at market value, and buy a new home, adding the money they are short to their new loan.
I realize banks won’t like the idea of new loans with unsecured credit, but big picture, no new risk is being created; it is just being moved to a new property. Perhaps the government can insure these loans? Or perhaps you can broker an agreement among banks writing the new mortgage to share the risk with the bank holding the underwater mortgage. And it should also be noted: We bailed them out. They owe us.
If government can find some way to free up these good credit mortgagees, they can upsize, downsize, take new jobs in different states, or retire to Florida. It could be good for the banks, which would be making more loans to people who have demonstrated their credit worthiness. It would be good for the realtors who would be selling more houses, and for movers and appraisers and landscapers and decorators. Most of all it would be good for the quality of life for those who got stuck losing equity in their current house, but did not abandon their debt and walk away.
Please think about this idea, and any other ideas people have that can help the housing market. Any improvement will go a long way to helping the general economy. It’s really rough out there.