Home Loan Bail Out.... we don't need no stinkin bail out.....

"Proposals for a taxpayer-funded government intervention in the U.S. housing market would essentially reward people for taking excessive risks, U.S. Treasury Secretary Henry Paulson said on Monday."

The above seems to iterate what the administration thinks of a government ( that's you and me the tax payer )bail out. Frankly, I kind of agree in part. People made stupid speculative decisions and so did banks. We all make mistakes, and like most things in life, pay a price to learn. The banks should pay, the CEO's should not get a golden parachute,they should get booted out on their a$$ with no money, and a letter or admonishment. American corporate pays is ridiculous and way out of line, IMHO.

In an editorial the other day on PBS, they were  talking of a plan by the Office of Thrift and Supervision ( OTS) that I thought had some merit.

Here is what I recall of the plan. It is sort of like an equity sharing agreement, along with a liquidity solution. See what  you think.

Assuming a $ 300,000 mortgage amount exists, regardless of value

FHA guarantees $ 270,000 ( bank gets some liquidity)

Balance due on loan, $30,000 is held as a negative equity certificate. This would be held, like the loan, for a 5 years or so time period. At that time, if the value of the property went up, the certificate could get cashed out, if the value never got back to the loan amount, then the lender ate. If it went above, the seller got some proceeds.

I thought this was a pretty interesting idea as it provided liquidity, a means for a bank to possibly get back  all their original note, and a borrower to stay in their home.

Right now I think it is in the interest for all of us to have the banks modify their loan terms to allow people to stay in their homes; they have to live somewhere. Better than paying rent and in a 5 year time period I'd be willing to bet they will be fine, especially here in Santa Cruz County.

While I hope all can work things out, not all banks are so willing or eager to make concessions.If you want to see what is available for short sale and foreclosed homes in Santa Cruz, Ca there is a variety, but thankfully not a zillion like some unfortunate communities.

Maybe in the future some of this can be mitigated by the local governments who hand out permits, taking a bit of time to think if all the permits they are handing out really is a good thing for their community. We are relatively lucky in the Santa Cruz area as the over building is not the problem, but in the southern part of the county, it was the sub-prime loans that were peddaled to farm workers. I think this situation was more chasing the American Dream, rather than speculation, like areas of Stockton or Las Vegas.

In the meantime there are some excellent values for the buyers who can forge ahead and look through all the negative media out there. This is beautiful Santa Cruz after all. Have a great day. Call me if I can help you with a home.

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