Fixing the Mortgage Mess

I’ve come up with my own simple suggestion for saving homeowners facing foreclosure. In my opinion, the government should provide some sort of fat incentive for banks to refinance failing loans-to the current delinquent homeowners-for 40, 50, or even 80 or 100 years if necessary. At first this may sound goofy, but let’s think about what this would accomplish:

• The banks keep the bad loans and foreclosed properties on their books as assets instead of liabilities, which is what they become when the foreclosure happens. They also increase their own revenue stream by increasing the amount of interest income the mortgage produces. With a 60 year note, the first 20 years or so of payments is almost all interest. I would imagine that smaller payments composed solely of interest would help the bank’s gridlocked liquidity situation a lot more than no payments at all and a crumbling house occupied by homesteading squatters. I could be wrong about that one though.
• Of course the homeowners have no intention of living in the home for that long, but they would have lower payments (as a result of the longer loan terms), and a real chance to wait the market out to sell or refinance… because that could take 10 years or more. Time is the important thing here, not money. Not to mention that as inflation continues to erode our dollar, they’ll probably be able to refinance sooner anyway.
• The government would get off easy by only providing tax breaks or a small subsidy. And they would look like they actually solved a problem for a change, instead of continuing to pave the road to hell with their good intentions.
• Most important to me: the people who did the right thing and didn’t get themselves in over their heads won’t be stuck paying for all of the people that took these foolish jumbo ARM loans in the first place.
• The speculators that bought five houses and only put $1.86 down between them are just going to have to get a paper-route or something; I really, really don’t feel bad for these folks.

See, easy! To me, this is a solution that everyone can live with. At least I can.

Any thoughts? Anyone? Bueller? Bueller?

Recession and the SPFMI

A multitude of articles out there in cyber-space are dedicated to figuring out whether or not the U.S. economy is now in recession. A recession, generally speaking, is when an economy is contracting instead of expanding—expansion, by the way, is crucial when using fiat money like Federal Reserve Notes, because when your money is based on debt that can’t be repaid, nasty things happen.

I understand that my definition of a recession is not nearly complicated enough for economists and other finance professionals; it’s entirely too concise, and arrives at the point much too easily. If you require something a little more vague, here’s a heap of contradicting definitions from google.

Seeing as how I am not a professional economist, I am not even going to attempt to argue this point with charts, graphs, and historical data. This is not to say that I can’t whip up some mean charts, graphs, and data, because while I may not be an economist, I am a beast of a programmer, and frankly my spreadsheets rock. I am instead going to prove my point using a new-fangled proprietary analysis algorithm that I like to call:

The Successful Person’s Family Misery Index (The SPFMI)

The SPFMI is based on the following, highly scientific, premise:

The Players:

• Group A: In every family, there are a few responsible, self-sufficient people. These people work hard, spend wisely, and generally have their affairs in order. When they encounter a problem, they do what they need to do and take care of business without so much as a whimper. They’re also known as “The Grown-Ups,” regardless of age.
• Group B: Every family also has many people that seem to always have better things to do with their time than keep their lives in order. They also seem to have no problem reminding the members of Group A that it is somehow their responsibility to deal with all of their personal and financial problems. They’re known by many names, but this is a family blog, so I’ll leave them out.

The Math:
The predation upon Group A by Group B increases or decreases in direct correlation with the relative strength of the economy.

Or, to put it in layman’s terms:
The more the economy heads south, the more all of the relatives you haven’t heard from since Thanksgiving are going to call to complain and hit you up for money.

There is probably some sort of formula in which the amount of time you spend on the phone listening to other people’s problems is multiplied by the number of checks you write (divided by feelings of guilt, of course), but I haven’t quite cracked it yet. I can tell you that according to my SPFMI, we are definitely in a recession, and it’s looking like it’s going to get a lot worse before it gets any better!