The answer to predatory lenders and mortgage brokers is government REGULATION. In the past when bankers being responsible instead of greedy, a mortgage would never have been made for more than 2 1/2 times the borrower’s salary and a mortgage payment would never been more than 25% of the borrower’s monthly gross pay. What we need to do is get back to those guidelines by law if necessary.
Of course, we will have to look upon a home as a place to live instead of a surefire investment that will allow us to retire at 50. A home is just a home.
As far as what to do with the people who are in default or who want to walk away from an upside down mortgage, there are a number of options.
1. If the mortgage can be restructured at 75% of the principal with a fixed 5% mortgage and the 25% remainder of the principal would be paid by increasing the payment annually as the borrowers income increases, do it. If the house is sold at a loss, a % of that loss remains a personal debt of the seller.
2. Anyone who walks away from a mortgage while they can afford the payments will not be allowed to have another mortgage for 10 years.
3. All mortgage requests will be signed under penalty of perjury and any broker or borrower who lies about the information may be prosecuted.
4. Make it impossible to file for bankruptcy more than once except in cases like major illness or similar situations. If you just run up your credit, no second chances.
What we are already seeing is companies advertising that they can get bailouts for individuals. These organizations and individuals working for them MUST be licensed and subject to criminal penalties if they break regulations.
It doesn’t help any of us to allow everyone to walk away or be thrown out if there is any chance they can pay. Some of us are going to actually benefit. Before this crash, I would never been able to afford my own home because of inflated prices. Now I will be able to buy a home in my preferred area for half the former price at a monthly cost approx 70% of current rent.