How to End the

Home Foreclosure Crisis

Is It Profitable                                       ...

Is It Profitable?    For most major corporations, making a profit is their primary and often their only concern.   But it doesn't have to be that way.   It's possible and relatively simple to create a home loan system with much broader concerns -- concerns which include the corporation's employees, it's management, its customers, the environment, and profits.  

There are two major ways to do this.  1)   By creating a new financial infrastructure focused on creating and managing home loans.  (See the next section below.)     2)  By updating the way existing  financial corporations are managed.   (See the link below to:  Creating a Solid Financial Foundation for Corporate Employees.)   

One must keep in mind the fact that without major changes in the present, financial industry's business model, failure is inevitable.  The existing system is simply not sustainable. 

The notes below are an introduction to  proposals that could be extremely helpful in resolving our financial crisis.   

Don't fix -- Create:   Obviously we cannot allow existing financial organizations to collapse and cease to be.   At the same time, neither can we simply throw money at them and declare our problems to be solved.    As a middle ground, suppose we keep the existing financial structures functioning while we examine our options and find the best ways to accomplish our financial goals.   

Our intention here is to focus on one piece of the huge, financial network.  That focus is the home loan industry.   The existing system has to be either redesigned or replaced.  Here's one possibility:

The Basic New Structure:   Suppose specially designed, Non-profit, Home Loan Foundations were set up to provide fair-priced, simple-interest, fixed-interest loans to home owners facing foreclosure.   Suppose every county in the entire country established an independent Home Loan Foundation for this purpose.   Suppose these foundations were funded directly by federal government from the federal treasury (and not through the Federal Reserve).   

Why Use a Non-profit Foundation Format?  Because this would create income-producing financial  structures that belong to the people of each county and not to the traditional, financial organizations that are dominated by money interests.   With a profit-oriented corporation, money is constantly being siphoned out of the business to pay lenders (stockholders).   With a Non-profit Foundation, all the money stays in the foundation and is directed to its beneficiaries. **ncw3    

What Would These Foundations Do?  Their job would  be to  service the residents in their county.   Each county Home Loan Foundation would be part of a National Association of Home Loan Foundations.     The association would not have power over the individual foundations.   Each foundation would belong to the people of the county that it serves.   According to the U.S. Census Bureau, there are 3,141 counties or county-equivalent administrative units in the United States.   

Why have so many independent Foundations?   The first reason is to prevent large concentrations of power.   A National Association of Home Loan Foundations  would represent the foundations when negotiating with state and federal governments, and it would share ideas and options with the member Foundations.   The intent is to:  1) to spread the power, 2)  to have significant transparency,  and 3)  to have outside audits so that fraud and the misuse of funds is prevented.  

The Foundation system puts the decision making on a semi-local level.  It's neighbors taking care of themselves and each other.   The foundation administrators are people who know and understand the local level needs and desires. 

The Source of Funding:   The experts are telling us that in order to solve the over all financial crisis, the home foreclosure crisis is the underlying problem, and that it must be solved first.   Suppose Congress were  to fund the creation  of a Home Loan Foundation in each county in the entire United States.   Suppose the  federal government directly  funded those foundations and each foundation dealt with the foreclosures in its own county?   The 700 billion dollar bailout could fund the solution to the home foreclosure crisis.   

Loan based on Home Value:   The foundation could examine the financial circumstances of the home owners facing foreclosure using the  procedures common to the home loan industry.   Those who had the ability to make the payments could be offered a new loan. **hf5  The Foundation would negotiate with the present lender.   The foundation would bring in an independent appraiser who determine the value of the property.   The foundation and the lender would determine a fair amount to pay the present lender.   The present lender would be paid the agreed upon amount of complete and close the present loan using money provided to the foundation by the federal government.   

A new mortgage contract would be entered into based on the home's value ten years ago.   Why ten years ago?  Because present home values are significantly inflated.   If loans are made based on present value, when the home values finally hit bottom the home owner would be owing more than the property is worth.    

Local Management:   Each Foundation would maintain and manage it's own loans and whenever necessary, be in direct contact with the borrower.   The foundation bylaws would specify that the loans could not be sold to investors.

Funding the Foundations:   With Congressional authority, the federal government could fund the Foundations directly from the U.S. Treasury without going through the Federal Reserve.   Why fund directly form the federal Treasury?  Because this would eliminate incurring any debt, the U.S. Treasury could provide the money to the Foundations at zero percent interest.  The Foundations could charge a nominal interest rate the homeowners, perhaps four or five percent, simple interest.   

Funding County and City Governments:   The profits from the home loans could be directed to creating local infrastructures and/or to pay for local social services, and/or to cover county and local government expenses, and/or pay for education.   This would give county and local governments an income stream that did not depend upon taxes or user fees.   This source of money would reduce the need for and could even eliminate property taxes.   (We might even get rid of parking meters in the process.)

Inflation:   Because the money created by the government would be being used to create goods and services, this would easily counterbalance the money being added to the money system and it's impact on inflation would very likely be none or negligible.   

The second major way to end the home foreclosure crisis is described in the  section linked  below, Creating a Solid Financial Foundation for Corporate Employees.

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