Can the government help homeowners avert the mortgage crisis? The CMPS Institute, which trains and certifies mortgage advisors, thinks so. It has just sent Congress a detailed proposal calling for government-backed loans to homeowners of up to 20% of the homeowner’s current mortgage balance. The consumer’s first mortgage would stay in place, and the homeowner could not borrow any additional funds until the first loan has been paid off. A homeowner could refinance the first mortgage, though, if a willing lender could be found.
In their press release, Gibran Nicholas, Chairman of the CMPS Institute, says: “If homeowners have no incentive to keep up their mortgage payments, the problems in the housing markets could continue to spread and plunge our country into a deep recession.”
It’s an interesting proposal, and one worth considering. However, two things concern me: 1. The loan would be full recourse, which means it survives even if the borrower must go into foreclosure. On one hand, that prevents this from becoming a government bailout, on the other it could turn homes into “debtor’s prisons” from which consumers cannot escape (much how I view student loans). 2. Is 20% enough to put lenders and investors fears of making mortgage loans at ease? In Florida, where I live, many homeowners are upside down to a much greater degree than that.
I personally believe that the bankruptcy reform proposal that would allow mortgages to be modified by a bankruptcy judge, is the most important and helpful measure that could — and should — be passed right now. The CMPS proposal could potentially compliment it but let’s put first things first and get homeowners the immediate relief they need.
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