National Relief Program for Bad Consumer Real Estate Loans



NATIONAL RELIEF PROGRAM FOR BAD CONSUMER REAL ESTATE LOANS AND CREDIT CARD DEFAULTS

Instead of a top down rescue, a bottoms-up rescue would serve the country better. There should be absolutely no rescue of the bankers as proposed by Treasury Secretary Paulson. The rescue should be from the bottom with the goal of ending defaults and empty properties and making sure families are not enslaved by usurous debts.

This solution is cheaper, more humane, and fits within our concepts of honesty and fairness. Ultimately, it should cost the taxpayers very little.

I. FEDERAL COLLATERAL GUARANTY LOANS

Establish a Collateral Guaranty Administration as a department within the Department of the Treasury, initially funded by treasury bills.

Collateral Guaranty Loans are loans by the Collateral Guaranty Administration made to homeowners to assist in paying a mortgage. The loan is need based. A loan is available only to those homeowners who objectively cannot pay their mortgages on time and pays the difference between the amount the homeowner is able to pay based upon a financial statement analysis and the contract mortgage payment. The CGL loan earns interest for the CGA at a nominal rate of 3% -4% per annum and the amount of the disbursement to the lender and the interest at simple, not compound, rate is added to the end of the mortgage term under a special mortgage note and agreement that gives the CGA a secured interest in the property that is second position to the mortgage guaranteed and extends at a reasonable pay-out term and security position after the full payment of the existing mortgage. Upon issuance of the CGL loan to the borrower, the mortgage holder is precluded from foreclosing the mortgage and the CGA receives and disburses all payments on the loan and, essentially becomes the mortgage servicing company for a CGA guaranteed loan. CGA pays all payments as they accrue on the mortgage whether the homeowner pays or not. In the event the homeowner is not able to pay the amount designated to be paid based upon the homeowner’s assets and earning capacity. The CGA assists the homeowner in transitioning out of the property and selling the property on the real estate market without suffering a foreclosure. Once a CGL is issued, it is the responsibility of the CGA to pay the loan in full as the payments accrue under the original terms of the loan. Loan acceleration is prohibited. If the loan is a balloon type mortgage or if acceleration has already occurred, under regulations, the CGA is permitted to make a new loan to the borrower for a term of up to twenty years at rates payable by the borrower. If the adjustable rate clause is “oppressive” or “unreasonable”, then it is deemed unenforceable as unconscionable and void and the loan is reduced to a fixed rate at the going market “mortgage” rate set by the Treasury Department.

Collateral Guaranty Loans would be initiated by the borrower filing an Application for a CGL. Upon the filing of the loan, all collection efforts against the loan would be automatically stayed, much in the same manner as a bankruptcy stay under 11 USC § 362. The Application would then trigger the administrative procedure where the loan payments are made by CGA and the loan is issued. The CGL process can only be initiated by the borrower. Notice of Application is entered by the CGA on the local real estate record to notify all interested parties of the stay

Due on sale clauses are voided and the CGL protections and rights are assignable to new purchasers. The goal is to stop defaults and keep the properties occupied.

Over time, the general progress of inflation will result in the payoff of practically all loans, even those that now are underwater. The interest on the loans should cover the cost of administration with a small profit.

For properties that the borrower is uninterested in joining the program, the old rules apply, foreclosure sale and suit for deficiency.

Since, under this plan, there will be no defaults, all Collateralized Default Swaps would be declared null and void.

II. NATIONAL PROGRAM FOR RELIEF FROM CARD DEFAULTS

Credit Card Banks are charging excessive interest rates on credit cards. There should be a maximum usury rate set on credit cards of not more than about 9% per annum. To achieve this rate, the Fed should deny Window loans to any bank with a credit card subsidiary or affiliate that charges more than this rate. There is no reason to have our government subsidize banks with extremely low borrowing rates that enables them to lend to citizens at such unconscionable high rates.

After all, who is the government for? Why should it be the banks and not the citizens who benefit from cheap lending by the government? For those banks that avail themselves of the federal lending trough, all existing credit card transactions to the extent of outstanding balances should be recalculated at the 9% rate. It is fair that the citizens benefit from the fed’s largess.

It should be illegal to charge more than a 9% rate on new cards. No increase rates at default should be allowed. The credit card companies can make a fair profit at 9% and consumers are not ripped off.

The old concept of Usury was a sound concept and it should be reinstituted.

By reducing credit card rates from the 21% - 30% rate to a maximum of 9%, substantial consumer buying power will be unleashed and individuals can begin to recover from their credit card slavery. The lower rate will encourage the banks to be more careful in extending credit card debt.

THESE TWO REFORMS ARE ENOUGH OF A BAILOUT FOR NOW. LET’S SEE HOW THESE WORK BEFORE DOING MORE.

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