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Wednesday, October 8, 2008

A Solution to stop the bleeding in the Housing Industry

Joel Robinson for

For those who bought home in the past 5 years or have an adjustable loan that will reset sometime in the next 5 years.

In order to stop the precipitous decline in the housing industry government needs to provide subsidized 'Short' loans for the difference between what a homeowner can sell there house for and the amount the homeowner actually owes. This loan will provide rates the homeowner could receive on a regular home equity loan for up to $100,000

This will allow homeowners to reevaluate their financial positions to more fiscally sound situations if necessary. As it stands now homeowners with good credit have no other choice than to wait until home values increase before they can have the freedom to seek other housing accommodations.

How would this work:

Homeowner A house's current value is $200,000 he owes $250,000.

His payments are about to reset from 4.8% to 7.0%

That is a payment of $1467 to $1664 and he can't afford it.

Homeowner A sells the house for $200K

Now He Has Options:

Option A:

He gets a loan from the government for $70K at 7% that’s $465 a month.

He finds a smaller place for sale at $150,000 puts 20% down from the government loan.

He gets a mortgage for $130,000 at 6.5% and pays $839 a month.

Now Homeowner A is paying $1,304 a month on a mortgage the will not reset. That is a saving of $163 a month in the mortgage payments.

Option B:

Continue to pay off the government loan of $50K and find a place to rent.

That is $333 a month plus rent he can afford to rent an apartment for $1,134

The Benefits of Government Subsidized Short loan?
This will allow homeowners to pay back the shortfall without damaging their credit. Also, by stabilizing hundreds of thousands of homeowners the economy will benefit. As it stands now homeowners have few viable options that only will exasperate the decline in the overall economy.
Stop the decline of housing prices Extend more help to a greater amount of homeowners. Keeps the homeowner from transferring debt to government and lenders.

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