The $1 plan

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Submitted by jmpman on November 1, 2008 - 11:25am

Irate about the potential mortgage write downs, I've started thinking of other proposals which would work economically, and not offend my free market sensibilities.

I call it the $1 Plan.

Homeowners who are unable to afford their payments can disclose their full income to the bank. After calculating the maximum payments the homeowner can afford, the bank then offers the home on the market, starting at $1 over. Anyone is allowed to bid on the property, and after 30 days, the highest bid wins. Of course, if nobody bids on the house, the current homeowner gets a write down to the agreed upon price.

This plan would discourage fraudulent under reporting of income, as the homeowner requesting a write down would effectively open up their home ownership to the free market.

Would this work? What are the unintended consequences?

This would create a swarm of properties on the market, so we'll need a swarm of buyers.

Would we need an additional provision - during the 30 days, the homeowner would be allowed to bid on any other properties valued under their approved price.

At least this seems like an interesting Game Theory problem.

‹ My first housing auction banks permanently write down the amount owed on some mortgages??? ›
I like the idea but you are
Submitted by Russell on November 1, 2008 - 11:46am.

I like the idea but you are right it probably has pitfalls. Who know if there are more or less problems of equity than other potential solutions. I like it though. Do you let the owners who get the boot have their credit restored so that they can play the game on the next house up for ? That might have significant impact on the buyer pool and therefore result of your plan. Of course the dislocated owners probably don't have a down payment.

How about a Prudent Renter
Submitted by Raybyrnes on November 1, 2008 - 12:49pm.

How about a Prudent Renter Bill

How about helping the more prudent renter by providing us with a write off on the first 2000 of rent a month . This puts more money back in a renters pocket and allows that family to save at a faster pace to be able to then become a prudent buyer.

I would reevaluate the 500K exclusion of capital gains on property.Eliminating it would put real estate investments on par with other asset classes.

dup
Submitted by Raybyrnes on November 1, 2008 - 12:50pm.

dup

It would help people that
Submitted by kewp on November 1, 2008 - 12:52pm.

It would help people that wanted to keep their homes.

However, my theory is that the bigger problem is going to be people stop making payments even when they can afford to.

Live rent free for a year or so then buy a REO for cash.

Mapping this in extended game
Submitted by urbanrealtor on November 1, 2008 - 3:36pm.

Mapping this in extended game form would make my head hurt.

Truly.

I know a couple of IT guys
Submitted by wannabe2077 on November 1, 2008 - 9:27pm.

I know a couple of IT guys who just plan to do it

Submitted by Raybyrnes... How
Submitted by CA renter on November 2, 2008 - 2:29am.

Submitted by Raybyrnes...

How about helping the more prudent renter by providing us with a write off on the first 2000 of rent a month . This puts more money back in a renters pocket and allows that family to save at a faster pace to be able to then become a prudent buyer.
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LOVE this idea! :)

If they really want more "poor" people to own homes and help us with our state deficits, they could repeal Prop 13 protections for second homes and investment properties (except apartments and multi-family dwellings).

I strongly support Prop 13 for primary residences, but allowing property taxes to float with the housing market would put more inventory on the market when prices are high (because prop tax would become too expensive for landlords), and would keep them off the market/be neutral at the bottom of the RE cycles. This would help stabilize the wild swings in housing prices, and keep investors out at exactly the times they cause the most damage.

Absolutely, Punt Prop 13
Submitted by KCTxr on November 2, 2008 - 7:58am.

Absolutely, Punt Prop 13 except for primary residence.

I think the potentially
Submitted by Navydoc on November 2, 2008 - 9:32am.

I think the potentially greatest flaw in your proposal is the huge discrepancy between what most people are actually able to afford, using traditional lending guidelines, compared to what they bought. During the bubble borrowing 10x or more of your actual income was common. I know of many people making a combined family income of $100,000 that bought million+ dollar homes. I don't think the banks are going to be willing to sell those houses for $300,001. If so, sign me right up!

This is why I can't stand the current political rhetoric going around about stopping home depreciation. We NEED affordability back, and dammit we're going to get it!