“Bail out guarantees future funds for Social Security.”
Summary
• Social Experiment Failed and why
• Need to Address Underlying Mortgages & Foreclosures
• Plan fixes flaw in social experiment, addresses current crisis, keeps people in their homes
• Homeowners able to pay their mortgages
• Bailout funds Social Security
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But, there is one issue that is being missed by all the politics. As a country, we engaged in a social experiment to greatly increase the level of home ownership. Although we adjusted the rules to bring millions more into home ownership, we didn’t address their lifestyles and the reasons why they were not able to own homes in the past. We still applied the old mortgage customs to lifestyles that are adverse to the customary way of paying for a home. We did not address the basic way to gain ownership in a way that accommodates the lifestyles of those who traditionally do not live in a way to gain home ownership under the old customs.
Charles Knobloch of Arnold & Knobloch looks at it a different way. “If we fundamentally change who qualifies for a home, then we need to handle mortgages in a fundamentally different way.”
Knobloch’s bailout plan is deceptively simple. Give homeowners a revolving line of credit to make up shortfalls in their mortgage payments. The interest made by the government in doing so goes to fund Social Security.
The plan accommodates the growing portion of the population whose incomes fluctuate with the economic times. Knobloch remarks, “Traditionally, these are our people who have had to live in fear to hold on to their homes every time someone in Washington or New York screws up.”
Quotes
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Former Congressman Steve Stockman agrees. “We need to address the underlying problem. If they just changed to require a down payment we wouldn’t be in this mess.”
Charles Knobloch of the law firm Arnold & Knobloch looks at it a different way. “If we fundamentally change who qualifies for a home, then we need to handle mortgages in a fundamentally different way.”
Paul Schrager, of Schrager & Associates, comments: “This is excellent thinking and wouldn't it be great that in order to protect the SS system - all home mortgages (up to like $500K) came through the system? This way the 5 - 6% whatever goes towards the future of the SS system and until the loans that never should have been made - the one's doomed to failure - work their way through your system will still be set up to win big after say the next 3-5 years.”
Knobloch remarks, “Traditionally, these are our people who have had to live in fear to hold on to their homes every time someone in Washington or New York screws up.”
Talking Points
The proposed $700Billion bailout of home mortgages is one step in solving the current financial crisis, but it misses one more step that must be taken in order for the bailout to work. Without a way to prevent actual foreclosures, the underlying engine of the economy -- the workers -- will not be in a position to work our way out of this crisis. What is missing is a way to address the underlying mortgages.
Many of these mortgages, whether subprime or stated-income, have a basic problem in that the
homeowners cannot make the full payment on the mortgages. This is not a crisis if only three or five percent of mortgages are in danger of foreclosure, but it quickly becomes a crisis to banks, investors, and insurance companies if ten or even twenty percent of these mortgages default.
Time is what is needed. Time to allow a struggling family to keep their home while they cope with rising mortgage payments or loss of a job. If the average family in danger of default is short by, say, $300 per month on their mortgage payment, then their problem is finding $7200 over a two year period instead of facing a several hundred thousand dollar foreclosure. Is it not more rational to spend that $300 a month rather than write a check to the bankers for $700 Billion?
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Don't get us wrong. The $700 Billion bailout is designed to stablize the entire financial system today. Most of that $700 Billion can be recouped, assuming the number of foreclosures can be minimized. That is why the Knobloch plan is needed to both secure the taxpayers' $700 Billion bailout AND to keep families in their homes.
The Knobloch plan is relatively simple. Homeowners facing financial troubles assign management of their mortgage to the Social Security Administration or new government resolution trust. In their assignment, preferably done online, they also work through a simple calculation to determine what portion of their mortgage they can still pay. They make their payments, preferably through payroll deduction (if they are still working), directly to the Administration. The Administration makes the mortgage payments to the lender. The difference accumulates as an interest bearing loan paid through payroll deduction. This insures that the homeowner's payments are proportionate to their income. If temporarily laid-off, they are able to defer repayment until they are able to work again. Since the Administration is preventing default, the government's loaned money has priority in any sale of the property.
Simply stated, the homeowner essentially will be able to make a portion of their house payment on a "virtual" credit card.
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This plan is very similar to a guaranteed student loan program -- except the middlemen bankers are taken away. The loans are directly with the government or the Social Security Administration.
The Plan has some very interesting and positive ramifications. First, it keeps the homeowner responsible for their debt but removes the specter of foreclosure to both them and their lender. Second, it shores up the underlying problem with the $700 Billion bailout. Third, it buys time and spreads out those mortgages which will still default. Fourth, payments through payroll deduction will have a high rate of compliance. This means that Social Security will have a new income stream.
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Unless and until some level of security is provided to the underlying mortgages, no amount of bailout -- $700 Billion or $7 Trillion -- will solve the financial crisis. Something needs to be done immediately to stop foreclosures without giving everyone a free pass for their economic sins.
Contact / Quote Confirmation / Interviews
Charles Knobloch Charles@aklaw.com
Contact information for Congressman Stockman available on request.
Paul Schrager paul@schragerassociates.com
(c) 2008 Knobloch. All rights reserved. Contact for publication permission.
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