Details have been released on the proposed mortgage bailout.
It appears that banks will be invited to lower the interest rate and/or the principal to get the borrower’s payment down to 31% of their income. This should result in a cost to the bank that’s less that that of foreclosure. In theory. Given that the cost of foreclosure is estimated to be as high as 50% of the home’s value, the loan modification plan may save us all some money in the long term. The government is going to offer banks a portion of their expense, a dollar for dollar match to reduce the expense ratio from 38% to 31%, but it seems the bank has to first fund the plan to get down to 38%. I don’t know if the President received my note suggesting that we implement a clawback on all overpaid bankers’ income goung back for the last decade, that would fund much if not all of this plan.