GOPideas... ideas done right

GOP Idea: Create an online database of houses that are having their underlying mortgage written down and allow first time homebuyers the opportunity to buy those properties at a value greater than what the lender would receive.

As demonstrated earlier, the Obama housing plan is a give-away to individuals who made commitments and now find that those commitments have turned out to be bad investments. Instead of allowing responsible buyers to acquire housing at low cost, the Obama administration is buttressing homeowners who made poor investment decisions. Instead, the government should seek to minimize taxpayer exposure while maximizing housing occupancy, capital inflow to the economy and promoting home ownership.

This can be accomplished by ensuring transparency in the mortgage market by creating an NPV test that would provide a verifiable value for the home: an auction on the open market. The current HAMP scheme has the lender bidding against itself by creating two scenarios that only provide a theoretical value to the home, based on numerous questionable (government provided) assumptions. What would really lead to price discovery would be to, after the NPV test was done, publish on a government website the calculated value of the mortgage. Currently, if a mortgage of $400,000 was calculated to have a NPV of $150,000 if the house was foreclosed on and reworking the mortgage would yield $200,000, the lender would be forced to rework the mortgage, losing hundreds of thousands of dollars.

Instead, the occupant should be asked to prove how much they could pay on the mortgage and then have that NPV calculated. The NPV and then house would then be placed on a government web site for a predetermined period of time (60 days). Within that time period, anyone willing to outbid the occupant would have the opportunity to do so. Such a scenario would ensure the following:

1. People who made bad decisions would not be provided a handout, taken from those that made good decisions.
2. People who were wise to not buy at the top of the market would have the opportunity to become homeowners because the homes that should be on the market, would be on the market.
3. Lenders would maximize their yield, along with acquiring the capital from the new buyers immediately (because the new owner would pay off the other mortgage upfront --- i.e. all the present value would be realized immediately).
4. New money would be brought in from the sidelines, stimulating the economy.
5. The moral hazard of buying what one can afford would remain intact.
6. Those seeking taxpayer aid would be minimized because of the possibility of being outbid for the house would dissuade participation.

This is the only idea that has been floated that would provide justice to both those who own homes they cannot afford and those that wish to own homes at affordable prices. Otherwise, the government will have perverted justice: pricing those who wish to buy a house out of the market, while taking their money to inflate the prices of those who should have never bought a house.