By: Rev. Jermano
No matter how many people want to knock Hillary; she is right that Paulson and Bernanke's supported Bush plan is bunch of hot air, when in fact they have certainly been the benefactors to the mortgage meltdown. This is what she has to say, although I think they all miss the reality to fixing the problem. Democrat Hillary Rodham Clinton on Monday criticized the Bush administration's plan to overhaul regulation of U.S. financial institutions, saying the proposal "comes late and falls short."
This is what I would do...
Financial Values Shift Equity toward Credit Appreciation
With housing mortgages collapsing into default, and banks suffering the risk fallout, why don’t banks finally admit they are getting what they asked for? They have all along wanted the equities from all those mortgages, and the property has become theirs, so why the hanging heads? Is it because of the false values that banks have no control over in concern to appraisals?
Now banks are smart they have realized this a long time ago. They go along with the equity game, which is always a smaller pie, when it comes to the loans they dish out. Say I want to buy a house for 285,000 dollars and come in with a 50,000 down payment to have the bank fork over 235,000 dollars to a seller, in which the bank is betting I make good on over a protracted period of time. The bank essentially has more equity in the house than the buyer, who only put in 50,000 dollars. While the banks are holding the majority of the value, they are not secure in knowing the value is real since values are always hedging upward with the idea of gaining profits, right?
This tells me that banks never care about the people who are buying the house and their own situation they are in. If banks control the neighborhood, they certainly control the value of the homes. The problem is that they can't find people to pay that amount of money for the loan values. In the end because of default, banks get the house, and the down payment money the default homeowner put into it. They put it up for-resale for another sucker to come along, and wait for them to go into default as well. And the cycle begins again. Tell me the banks are losing money and I will tell you a wood house won't burn when you put a torch to it.
What determines a houses value? In a community with a healthy growth rate, with more and more people taking up residence (more buyers in the market place), the demand for housing usually increases. This in turn increases the market value for your home. Conversely, with a sluggish economy, slow growth, and no demand or few potential buyers in the market, your residential property's value will probably flatten or decline.
They say that Property Appraisers create none of these market situations; but individuals in the community create value by their own transactions in the market place. The Property Appraiser is, however, mandated by State Law with the legal responsibility to discover these market changes and to appraise all affected properties accordingly. Of course Property Appraisers are going to do what the community wants and most communities want to see high appraisals in order to gain unsubstantiated profits from inflated appraisals.
Equity is the value of a property minus the owner's outstanding mortgage balance.
Home Equity is the amount of ownership that has been built up in a property. Typically, residential property is bought through a mortgage, which is then paid off after a number of years. After the mortgage has been fully repaid, the property then belongs to the mortgager, who is the buyer. However, the buyer simply builds up "equity" in the home. This equity is equal to the current market value of the home minus the outstanding mortgage balance. This is what a home equity loan borrows against. Although that equity cannot be sold, banks will lend money against it.
So why do banks always blame people with bad or poor credit risk? You know if the economy was so great those people would make their payments on time. In fact since there are so many people called bad credit risks tells me something is fundamentally wrong with the way the Banks have been doing things for a very long time.
Let' s not blame the people with credit risks, better to show how the bank doesn't live up to reality by insuring against such risks, and having banking services that eliminate those risks and actually helps people to protect their credit, and promotes their credit worthiness to build credit appreciation. Banks do none of this, and so in their failings they want to blame the people? It is such an outlandish economic blame tactic. Come on Big Bankers you can do a better job than that.
The 2 Loan Mortgage Statue Stability Act:
The way to fix the problem especially for home mortgages is to forget the one loan that is always given to home buyers. What is needed is to give two mortgages to the home owners. Just like we need two arms, two legs, two ears, and really two brain hemispheres to think in this world; we need two loans. One loan is for buying the house. The other loan is used to make payments on both loans. This way no one ever faces default. Sooner or later the money runs out, but it is enough time to prove a worthy credit history, then another loan is taken to replace it. This can go on indefinitely because banks will always be in the loan business. Home values should not be based on equity accumulation. It needs to be based on Credit Worthiness or Credit Appreciation.
Banks will not have to worry about losses because investors will look to bank profits from a dual interest accumulation from a 2 Loan Mortgage Policy. And what will really drive the economy is the ability to write off both loan interest rates from your annual income taxes. Now I don’t know about your thinking, but that is a sizable tax benefit, that can be permanent and real, never mind the mindless GW Bush tax relief rumblings.
In other words it will not be so much the value of the home that is the consideration, but the serviceability of the banks that support the loans. In fact the more loans a bank has with flowing capitol the more value that bank acquires, and the more value to the Homes Credit Appreciation.
Really the banks and politicians create this crisis when they don't promote home ownership secure from our work place economic factors. People end up buying a house hoping to build equity so they can have the security to use the money for something else, such as buying another new home, or using it as a basis to have better credit to pay for other things, be it education, medical bills, wedding, a new car, since the work place economic factors always seem to fail due to politicians egregious errors. People use their homes as a buffer against failed economic policies. And since there is no security plan for homes from the work place economic factors, people default on their loans.
People have no other choice but to expect to have rising appraisals because many have low equity accumulation and hope when they buy they can inflate the house value under a false assumption the market will support it, and ultimately end up losing. People always expect a profit from Real Estate, instead of thinking homes are something we intend to keep forever.
Banks and Politicians set the market values, with their nefarious plans and unfruitful tax schemes with wars and catastrophes happening because they failed in their foreign policy objectives, and now we see what is happening. We are building Default City USA.
Banks are in the business for giving out loans. People want credit, so it is not about equity we build. It is about credit worthiness or Credit Appreciation in making payments and never thinking about defaults.
If banks adopted
2 Loan Policies for Mortgages, we would never have these issues. People would not be worrying about how to pay their loan, because the bank offers a service in how they can keep their homes. This makes the bank more secure, and it makes the housing market more secure and stable. We need to separate our homes from the economic factors work place. One can not rely on the other. Presently both are unstable. But if we have our homes secure with the 2 Loan Mortgage Policy; having to deal with an outside unstable work place economic factor; we are assured that methods to provide secure work place economic factors, can come to being.
In Asia the markets copy American standards, and with more than doubling of people because of population size their failings are recognized sooner than inside the USA, by slower building while keeping people in poverty. Asia does not have a 2 Loan Mortgage Policy and they play the same bag of tricks the US does with Bernake at the up and down button. They ultimately fail.
With the 2 Loan Mortgage Policy people won't have to worry about being laid off from work, since most people are on fixed incomes. As long as payments are made, and the banks obligations are met, then banking and home buying will go on indefinitely. Bank plans now to tighten banking loans because of questionable risk is more of a disaster than our present situation; because it causes shut downs and deep despair in communities.
Presently Banks create the risk, because they don't provide a means to cover it. Banks can't blame the public. Banks need to step up and do their best to create a system that can not default or fail. Many economists will say we gave out lots of loans and they failed. And now they think they need to tighten access to loans; which is totally wrong.
Financial Institutions need to provide much more loans, to pull us out of the mess. Having loans pay loans is a long term plan and it can be setup so banks can always be assured to get their money. When loans are paid, this establishes new Credit Appreciation, and the ability to establish value to the said properties.
Equity hedging is becoming a thing of the past, because in reality it is not security to a bank. Security to the bank is having stable housing appraisals, which neither increases nor decreases in value.
In fact Banks have everything to gain in such a new standard, because actually their books will reflect double mortgages on a single residence or property, giving them greater returns and maneuverability toward other market relationships.
If banks don't do their job as I suggest; housing markets will never recover, and the same old problem will remain. We need to get banks to loosen up and enact a 2 Loan Mortgage Policy so home mortgages remain stable. This plan is not like taking a 2nd mortgage on a loan. It is the idea that one loan covers the house, while the other loan makes payments on it and itself, until the money runs out. Then you will have a solid history of repayment, qualifying the homeowner to take out a new loan again to keep making the payments. This is Credit Appreciation.
In today's world we do it with credit cards all the time, by paying ones installment with the other. Borrow from Peter to pay Paul is a strategy that saves the markets, and saves creditors their credit ratings. So open up the loan system and provide the 2 Loan Mortgage Policy instead of tightening it up as they are doing now. This will establish a new banking regulatory called The 2 Loan Mortgage Statue Stability Act.
To assure banks get their money; banks don't have to make the money available to the people on the outside. In other words the 2nd loan mortgage policy would be held in a Bank Management Fund, where these funds are strictly used for making payments on the 1st loan. This is so the banks don’t worry about losing the money, in which people maybe using it for something else.
Banks need to make a 2nd Loan Management Fund so money is easily transferred to pay on the 1st loan. People and Banks will not have to worry about outside economic forces ruining the pay back process to the banks. This creates security and stability. When people have their homes assured in being paid, they can go about doing other things in making money, and creating products for the economy.
Where we fail is when we do not have the 2nd Loan Policy, and we leave everything up to the production forces in the economy, hoping that we will keep our jobs, and make the needed money to make the monthly payments on the loan. Things inevitably fall apart, people lose jobs, they can't sell the home, and they have to move. America is a gypsy society always on the move, no wonder economics fail, neighborhoods disappear, and no one knows each other. We need to stop this.
There is just too much pressure on the individual to do all these things, and banks hope and think they are going to maintain some sort of worthy credit rating?
It doesn't work and certainly that is why everything is crumbling. We need the 2 Loan Mortgage Policy. Our financial services are changing from Equity in acquiring a loan system, to a Credit Appreciation system in acquiring a loan. This only means the needed relief all Americans and Banking Institutions are in need of.