Wednesday, November 11, 2009

Fannie Mae Adopts One of My Ideas

Some time last year or early this year, when large US commercial and investment banks were dropping like flies, and Sheila Bair's FDIC experimented-unsuccessfully- with loan forgiveness at IndyMac bank, I mused to my business partner about a more creative way to mitigate homeless families due to foreclosure. I'm reasonably sure I mentioned it in a post at the time.

If you recall, by that time, the incoming administration announced that banks had better begin a moratorium on mortgage foreclosures. Banks were admonished to go easy on delinquent and defaulted mortgage borrowers, or else. The specter of families tossed to the curb, only to see their homes remain empty, drove Congress and the administration to strong-arm banks to ignore conventional means of handling non-paying home loans.

To me, the solution seemed obvious. Allow defaulting borrowers to remain in their homes, paying a below-monthly mortgage payment rent which was a function of market conditions.

Seems pretty simple, doesn't it? I mean, if the federal government is going to behave coercively toward lenders, why don't they at least do it in a productive fashion?

I surmised, at the time, that the income from a seamless change from defaulted mortgage loan to rental payments would vastly reduce the costs to investors in the mortgages, or the bonds they backed, while also avoiding much real, personal pain and dislocation for the families involved.

Additionally, occupied homes won't be subject to the vandalism that foreclosed, empty homes so often experience.

Now Fannie Mae is announcing a similar plan.

It's about time.

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