Bailing Out the Homeowners   Leave a comment

One argument is that since we bailed out the big banks, we should be willing to also bail out people, i.e. the home owners.  Firstly, I’m not keen on bailing out ANYBODY, but let’s explore the idea a bit.  Most of the big banks paid back their bailout loans within 9 months.  An underwater home owner would take years to pay back a loan for the amount they are underwater, so bailing them out would be very different.
One consequence of the housing crash is that many home owners wound up with massive negative equity in their homes, and then they lost their jobs due to the recession, and because they can’t sell their house for enough to pay off their loan, they can’t relocate for employment reasons.
One thing the government could do, at no cost to the taxpayer, is create a class of loan called “negative equity unsecured loan”.  If someone has negative equity in their house and doesn’t want to declare bankruptcy or be foreclosed upon, make it possible to take out a loan for the amount they’re in the hole that would, like a student loan, be unsecured by any collateral and impossible to wipe out through bankruptcy.  The interest rates on these loans would probably be similar to those on student loans — higher than mortgage loans due the absence of collateral, but much, much lower than credit card debt due to the unavailability of bankruptcy.  Then people could sell their houses, relocate to where the jobs are, and resume paying taxes and paying off their debts.

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Posted May 24, 2013 by xyquarx in Uncategorized

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