On vacation the husband and I were discussing what we would put together for an economic recovery package. While this isn’t normal vacation chatter for most folks, it’s what passes for fun at the Coble household. Besides, I asked the hotel to stop giving us USAToday in the mornings and they didn’t–so we were stuck seeing at least the above-the-foldlines as we walked the “paper” over to the recycling.
I had an idea that I think would help the mortgage crisis, the general economy and a lot of other things. I’ve thought about this from many angles and have yet to think of a downside. I’m relying on someone out there to hand me a downside.
Here it is in a nutshell:
Automatic stays on mortgage payments for the unemployed.
We already know that unemployment benefits are a joke. Last year we collected just enough in unemployment to meet our basic needs. Daily I thank God for our savings and the brothers and sisters in Christ who either lent or gave us money to see us through. There was no way unemployment would cover our mortgage payment. In fact, the maximum amount of unemployment in any state does not cover the average mortgage payment amount in that state.
Clearly losing one’s job is a recipe for losing one’s home as well. And of course the cascading stressors make it very difficult to find another job.
If you become unemployed while holding a student loan, you can fax proof of unemployment to some office somewhere and then be exempt from making those loan payments until you get a job. That’s called an automatic stay.
Why can’t we do the same thing with mortgages? Especially now that most mortgages seem to be owned in some way by the government (much like with student loans.) The default and foreclosure rates would surely go down if people weren’t technically falling behind on their mortgage payments as they looked for work. The downside for the lender is that they don’t get their money–but they weren’t getting it anyway. The downside for the borrower is that they aren’t paying down their mortgage during those months. But they likely weren’t able to pay it down anyway.
I fail to see how this one common sense idea is in anyway bad for our country or our economy.
Put in a clause about how you also don’t have to make payments in any month in which your healthcare costs go above X% of your income (or after a period of some months in which that happens) and it could have an impact on two of the biggest problems facing people with mortgages.
hmmmm
My first reaction is that this is a strange idea coming from a libertarian. But, after that little tweak
It’s hard to find fault with this idea, in the current environment. As you said, the lender isn’t going to get his money anyway.
One thing to think about: in my limited understanding of finance, I’m pretty sure that risk is a factor in determining terms. This arrangement lowers the risk (contractually) for the borrower, but not necessarily for the lender. Messing with risk has got to effect the interest rate, I’m just not sure in which way.
Having government meddle in an industry is the absolutely best way to screw it up. But, we’ve already crossed the Rubicon on that one. Thanks a lot, president Bush.
Ah, “affect”, let McCain aides start spreading rumors about what a stupid rube I am.
The lender wouldn’t be getting money in this case but most deferred loans continue to collect interest so it’s not too bad of a deal for a lender if it’s time-capped (you can only defer for unemployment for X amount of time). I think it sounds like a pretty reasonable idea.
That’s a brilliant point. The one snag is that the lending lobbyists would hate it. They make tons of money in fees on late payments.
They do offer packages on many consumer loans and credit cards where your payments are taken over if you lose your job or go on disability, but that’s not quite as effective as a payment deferment, and not nearly as fair to the consumer.
My first reaction is that this is a strange idea coming from a libertarian.
Actually it’s the perfect idea for a libertarian to advance in this day and age.
Instead of authorising the government to spend X dollars redistributing wealth by force, it merely puts a plan in place whereby people still spend their own money to pay their own mortgages.
Other mortgage plans I’ve seen in “the paper” and elsewhere all seem to involve the government spending money. This relatively simple idea doesn’t do that.
I know I’m a libertarian, but the ship has sailed on perfect libertarianism. With the barn door being flung wide open by Bush 2 & Congress, at this point I think it’s our (liberty lovers’) job to try to rein in the runaway horses.
They make tons of money in fees on late payments.
I thought of that. I figured they (the lenders) could obviously tack on late payments, but make those due at the end of the loan.
In other words, say you have a mortgage payment of $1000/mo. The late fees for non-payment (apart from increasing interest) are $75/month.
If you have an automatic stay for 9 months of unemployment, then the (9*$75) late payments get added to the balance of the loan.
People will complain that this makes 30 year fixed mortgages take 40 years to pay off. But that’s better, I think, than losing one’s home.
[...] loss of employment is – of course – the impetus for not being able to make your house payment. Katherine Coble’s solution, If you become unemployed while holding a student loan, you can fax proof of unemployment to some [...]