Word: mortgagees
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Dates: during 2000-2009
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Reduce the outstanding principal on every single mortgage to, say, 70% of the original value. Yes, you read that correctly: lower every American homeowner's mortgage debt by a fixed percentage. (See 25 people to blame for the financial crisis.)
If homeowners owe less money on their mortgages, they will be less likely to stop making their payments. The plan is equivalent to a universal renegotiation of terms that improves the situation for both homeowners and banks. As a bonus, mortgage-backed - and, indeed, all mortgage-based - securities will become...
The other core issue is that too many people can no longer afford their mortgage. Maybe they took out an adjustable-rate loan that has reset higher, or they lost a job in the slowing economy. If we could stop the cycle of defaults and foreclosures, the thinking goes, we...
But there are also plenty of people who might be able to keep their homes with a lower interest rate or a longer loan period. In many cases, this is in the best economic interest of the mortgage holder, since up to half of a house's value can be...
The tricky part is figuring out who will meet their modified payments and who will simply fall behind again. The relapse rate can be quite high, meaning that we'd be spending money only to delay the inevitable. Part of what drives up the redefault rate, though, are changes that...