The bailout

The Bailout Package???: Guest Contributor – Michael Lissack

An Open Appeal to the President and the Treasury: Humbly submitted by Michael Lissack!

Wall Street and the general public are unimpressed by the latest bailout suggestions. The only solution for our economy is to FIX the mess regarding housing PRICES. The economy is suffering from the risk of foreclosures and the inability of banks to properly value the mortgage assets on their books.  There is a solution.  Create a loan repackaging service at Fannie and Freddie.

Any borrower may ask to have their loan purchased by the repackaging service, but the service should only repurchase loans related to the primary residence of the borrower or a home which had been the declared primary residence of the borrower for at least six months following January 1, 2007.  If a home equity line or a second mortgage exists on a home it must be included in the repackaging.  Loans aggregating more than $1 million per home shall be ineligible.

Loans to be repurchased shall be valued at the lesser of the outstanding principal balance or 100% of the average of three appraisals.  The existing mortgage servicer/holder shall NOT be required to sell the loan (but the existence of the offer will create a market value for marking to market purposes).

The borrower of a repackaged loan shall agree to add a deed covenant granting the repackaging service 50% of the increased value of the home as of the fifth anniversary of the date of the new loan not to exceed the amount of the principal reduction from the original loan and the new repackaged loan.   The home can only be sold during these five years subject to this secondary lien.  The repackaging service can sell the secondary lien to a new owner of the home prior to the fifth anniversary date and to the original owner of the home (if he or she is still the owner) on or after the fifth anniversary date.

The Treasury shall subsidize all repackaged loans such that the stated interest rate for the first five years shall not exceed 4.5%.  New home purchases shall be offered immediate purchase of their loans by the repackaging facility.  This plan will stabilize housing prices.

I have enjoyed conversations with Michael over the years, and I really like his thought process.  What your comments about Michael’s open letter to President Obama?