Long time no write! I know it’s been a while. I wanted to write, but with the only news being political news about the election, and me trying hard to make this a blog about issues and not about politics, I thought I would wait until everything had done cooled off. Well… everything had done cooled off.
So I was watching the new and I saw something interesting. This lady was on a hunger strike to protest her house being foreclosed on. I am not going to comment on rather a hunger strike would be a good thing or bad thing for this woman consideration her current agreement with gravity and how long this could last as a result, but it did get me to thinking. This is not going to achieve anything. The only way this would help this woman keep her house was if she was spending a house payment on food every month and, NEWS FLASH, you wont last a month without eating. But cuddos for making an effort, and taking up the form of protest exercised by the likes of Gandhi and Irish prisoners. Of course they had constant contact with the media who were reporting on major issues not just some nut job, and they were protesting something that mattered to people other than themselves, and people cared about them before they started the hunger strike, and they did it by sitting down and conserving their energy rather than making a sign and picketing people driving by, and they were protesting injustices rather than breach of contracts, and they had people to help them do it because that can be a horrible way to die, but aside from all that… GOOD JOB LADY.
I believe that many stupid people will likely kill themselves if not interrupted. Normally I would relish the opportunity to see Darwinism of this clarity in action, but seeing as none of my friends are enough of a news junkie like me to take bets on how long she’ll last, and we still do have a housing problem in this country with a newly elected and likely more grid locked government, and no one cares about her so I doubt I’ll even be able to watch this train wreck even if I wanted to… I guess I’ll help get us out of this mess. Besides, now I can claim the moral high road and say that I support people who use non violence means to protest in a manner sort of, kind of, not really at all like Gandhi.
So the economic trouble we have in this county started with housing. Banks lent money they didn’t have to people who couldn’t pay it back. Both parties took a gamble on the other one and they both lost. Don’t tell me that people were tricked into purchasing these homes. If the person in the house is making payments, and referes to it as their house they knew what they were doing, they weren’t tricked into anything, they made a bad decision. The bankers who didn’t verify income knew what they were doing, and didn’t care because they were going to sell the loan off to be broken up into tranches in a few days anyway. Both parties wanted the deal to happen so both parties were more than happy to turn a blind eye to the details or the real risks that they were assuming.
Now that the deal has gone bad both parties get exactly what they don’t want. The bank gets another house in a flooded market, gets to sell the house at a low rate and thus lower the rate of all the other houses that they now own and lower the value of all the others that they hold a claim against, and the bank gets to eat the loss. The former home owner gets a huge mark on their credit and gets to find another place to live that hopefully will accept them even with there new found credit rating. And we the people get to watch this in horror wondering why these morons made this deal in the first place, and we get to hope that the government doesn’t bail both of them out. And the crazy lady gets to wonder why her hunger strike isn’t working.
The first thing we do stop being a victim and start taking responsibility. Once we’ve done that we will realize that this is not something that is happening to us, it is in fact something that we have caused and are causing. Now that we realize that we are causing it we can take control of it. And here is how we do that.
***WARNING, MATH & FINANCE CONTENT***
Lets say that someone owes 100K on a 200K home and they are no longer able to make the full payments. Heck lets take it one step farther and say that they are no longer able to make any payments. Now what if instead of making payments in cash they make payments in principle. Instead of making a payment in cash toward a loan the bank accepts payment in ownership of the home. So lets say that the bank takes 25% ownership of the home in payment. Now the bank owns 50K worth of the house and the owner only owes on the remaining 75% minus whatever equity they have in the home. (This could be done on a monthly payment basis, but we’ll use these numbers in this example.) Now the principal is lower so the payments can be lower, and even if the home owner completely pays off the loan, they will only own 75% of the home while the bank will own the remaining 25%. If that too complicated, think of it like a temporary-midstream-reverse-mortgage-paid-by-the-bank-to-themselves-on-behalf-of-the-lendee-in-exchange-of-a-loan-repayment. Or, for short, TMRMPBTBTTOBOTLIEOALR, pronounced “trumpet bat bottle o’ air”(guess who barely passed english in highschool).
Now the person living in the house gets to keep living in the house, gets to keep a better credit score, and gets to make lower payments.
The market for houses stabilizes and the values stop plummeting because of all the foreclosed houses on the market so both parties win because they both own real estate.
The bank gets to claim a capital investment in the property on their taxes or claim the ownership towards minimal holdings, when it’s sold, claim the loss as an expenditure in terms of operations or the gain as a capital gain, which is taxed at a significantly lower tax rate.
And the crazy lady gets to end her hunger strike.
Now a couple of things can happen.
You can try to say trumpet bat bottle o’ air in a conversation about how to turn the economy around while trying to keep a straight face.
The home owner wishes to own the house in full. Now the primary home owner (individual) can purchase the remaining 25% of the home from the bank for an amount that they both agree on, for example… the NEW current market value.
The bank may have the right to inspect the premises on a somewhat regular basis to ensure that their investment is being taken care of, after all they have joint custody.
If the house is sold, the bank has to approve the amount for which the house is sold for and receives 25% of the revenue due to their ownership from the sale of the house, not to mention the bank would have a very good chance on securing the loan for the new buyer.
If the value of the house has dropped before the trumpet bat bottle o’ air has begun, then that can be taken into consideration with regards to the amount exchanged in the trumpet bat bottle o’ air. It could easily be adjusted to take the current value of the home, equity, interest remaining, and all other parts of the loan and market into consideration.
Both parties bet on a risk that didn’t turn out. Now both parties can share the risk to mitigate the loss.
In the mean time the bank can bundle up all these parts of houses equity and sell off tranches into the market. Sort of how we got into this mess, only this time they are selling home equity rather than a home loan. If the housing market has bottomed out, and many people think it has, and this will help it bottom out, this is a pretty good investment.
Everybody wins. You can thank me later or you can come up with a better name than trumpet bat bottle o’ air and comment below. And speaking of house payments… is anybody hiring?
