How the Government Can Help the Housing Crisis

Posted on October 30th, 2008 by saman

The main goal of a bailout plan is to help people stay in their homes and to stop mass foreclosures from causing damage to the housing industry. If a lot of houses are put back on the market the houses have low value. If there is a large drop in home values, this cuts the assets of banks that have conservative mortgage programs. These cuts create problems for the banking industry.

When it comes to bailouts, the ones who should pay for them are the ones who caused the foreclosure and mortgage problem, not the taxpayers.

The government should purchase bad mortgages at full value for houses that have not begun the foreclosure process. If a home has been foreclosed on, the government should not pay more than what the mortgage is worth. These foreclosed homes should be given to HUD and be used to help teachers, military veterans, firefighters, and police officers buy homes.

Giving money to companies should be in the form of Treasury bills. These Treasury bill would allow for ten percent redemption within a year and an additional ten percent in another two years. Congress may want to also limit redeeming the bonds to five percent each year. Companies that receive that money would use the treasury bills to pay their employees or save the money to pay for their future income taxes. Companies that receive this aid should have to pay more income tax on their total income for the next several years. Only a few deductions should be allowed. Congress should think about levying surtax on executives who work in troubled firms. All income of these executives who make over a certain amount should be taxed and deductions should not be allowed. It would also be a good idea to do an audit on these firms each and every year.

For bailouts to work, homeowners who have bad mortgages would need to file for bankruptcy in order to relieve themselves of credit card debt. Congress might want to make an exception to the current bankruptcy laws to let them file for an emergency bankruptcy. By eliminating consumer debt would help the homeowner improve the ability they have to pay for a home loan. Also, homeowners who still could not make loan payments should be allowed to trade their home for a foreclosed home held by the government.

The rate of interest on a home mortgage would be the same interest rate of the Treasury bill that would be used for the mortgage bailout. A good idea Congress should consider is requiring homeowners to have their house payments taken out of their paychecks along with other income taxes. In this way the homeowner could help pay for the mortgage bailout without putting too much pressure on them.

HUD could offer the former owners of foreclosed homes a chance to get their homes back at a cheaper rate and under similar conditions of homes that have not been through the foreclosure process.

The Great Depression lasted as long as it did not only because the banks failed but because these same failures destroyed the assets of depositors. The foreclosures of businesses and homes, farms in particular, eliminated the assets of individuals that could have been used to help the economy.