Mortgage Relief

Solution

   A possible manner of preventing multiple mortgages from defaulting may be if the federal government offered to pay interest on the troubled mortgages as a temporary measure until the economy recovers.

   Similar to the college loan program where payments are deferred, and interest is paid by the government to the banking institution until the student graduates. By doing the same for troubled mortgages during an economic depression, this will allow the financially distressed some relief while the banking institution continues to receive interest payments that would prevent the mortgage from defaulting.

   To limit abuse, the government may pay interest up to five years if the homeowner files for hardship, and the program may only apply towards primary residences (not multiple homes). A further restriction may be that a homeowner may only apply once for the program during their lifetime. A five-year period of coverage should be long enough for the unemployed to find a job and recover from their financial situation.

   If this policy was in effect some years ago, it could have prevented a large number of mortgages from defaulting that caused the great recession.

   Monetary-wise, having the government pay the interest on a distressed mortgage during a five-year period is much more cost effective than inheriting the entire mortgage itself (as with Fannie Mae).