Mortgage Relief

Solution

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

   Similar to the college loan program of where interest payments are paid by the government to the banking institution until the student graduates to resume payments. Doing something similar for troubled mortgages during an economic downturn will allow the financially distressed some relief while the bank continues to receive interest payments that will prevent the mortgage from defaulting.

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

   If this policy had been 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/Freddie Mac).