A simple plan to save people from foreclosure without backlash.

[wartrace]

Encourage banks to extend the term of a loan in order to fit the borrowers capability to pay. The term could be extended until the monthly payment is 28% of the borrowers gross monthly income. Rates would be fixed rate & the rate could be determined by the borrowers credit rating. Even if the term were extended to 100 years the family would not lose their home. If & when the value of the home returns the borrower would be free to refinance to a traditional mortgage loan. If the borrower's financial condition improves they could refinance with a traditional loan. Nobody would be forced to keep this mortgage indefinitely, it would available to any homeowner for the life of the loan if needed.

Why does this make sense? It would not reward anyone. Those who rent or have been paying their mortgage without trouble will not feel "cheated". Families in danger of losing their homes would be able to stay with a payment that is within their budget.Those people who use this program would be free to refinance to a traditional mortgage at any time they are capable of paying that mortgage at traditional rates & terms. Neighborhoods would be stabilized by fewer foreclosures.

Unfortunately, people will still lose their homes due to other reasons such as death of a spouse, divorce & unemployment.

Is this a bad plan?

[Oregone]

1. How do you 'encourage' banks?

By subsidizing them, paying the difference, offering tax incentives. That seems like one hell of a reward.

[wartrace]

3. What difference?

They would get their money, it would just take longer. The other option for them is to foreclose & take the loss from the depreciated asset.

[DJ13]

2. The only thing the banks understand is the stick

Carrots only make them hungry for more.

[hugo_from_TN]

4. Extending the term only can drop the payments a certain amount

You can extend the term to 10,000 years and there will still be people that cannot afford the monthly mortgage. Once your payment is 0% principle and 100% interest, the term is infinite.

[wartrace]

6. Unfortunately we can not save everybody.

Some people bought too much house for their income. As much as it would be nice to save them it wouldn't be possible. There are going to be some that will lose their homes regardless of interest rate or length of the loan.

[hugo_from_TN]

8. I think that is absolutely necessary

Hopefully the incentive program will recognize when someone just has too much house and figure out a way to get them downsized.

[wartrace]

10. Rentals are available.

The goal is to stabilize housing & help people stay in their homes. If it is impossible to help them stay in their home they can rent for a while and try again later when they have a suitable down payment.

[county worker]

5. A lot depends how far into the loan a person is in paying back.

Since you pay mostly interest in the first years, extending out the principal on a fairly new loan does not lower the payment much. The way to lower the payments is to lower the interest rate.

[wartrace]

7. That is also an option lower rates & extended terms.

The main thing is to allow people to live in their homes & avoid foreclosure.

[hugo_from_TN]

9. If you make 50K and somehow got into a 500K house

you need to get out of it and into something you can afford. The goal should not be for someone in that position to stay in the house.