Redstate

By ageofreason Posted in Archived — Comments (1) / Email this page » / Leave a comment »

If all the financial turmoil has truly been caused by the rise and impending further rises in adjustable rate mortgages, the Fed could have done something far less risky than assuming $30 billion in risk to subsidize JP Morgan's $236 million takeover of Bear, which is worth a probable thirty times that amount, and probably more.

The Fed could offer to take a second mortgage on all primary residences on which appraised value exceeds mortgage debt by twenty percent or more. This second mortgage would pay fifty per cent of the monthly increase (one month at a time) in interest expense over the base rate.

The holder of the base mortgage would have to agree to fold the other fifty percent of the increased payment into the existing loan which would be extended for a period of up to five years.

In case of default the Fed's portion of the second mortgage would take first position and be fully paid back before the holder of the first mortgage got paid.

The homeowner could stay in the home and lose no equity in a foreclosure; the lender would get its payment rather than having to foreclose; and the Fed would get its money back with interest instead of giving more of the taxpayer's money away without resolving the crisis.