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 how the college loan program works where interest payments are paid by the government to the bank until the student graduates to resume payments. If the same was done for troubled mortgages during an economic downturn, the financially distressed will be provided some relief while the banking institution will continue to receive interest payments preventing the mortgage from defaulting.

   Interest may be paid for up to five years if the homeowner files for hardship. A five-year period should be long enough for the unemployed to find a job. The program may only be used for primary residences (not multiple homes). A further restriction may also be that a homeowner may apply for the program only once during their lifetime.

   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 more cost-effective than inheriting the entire mortgage itself (as with Fannie Mae/Freddie Mac).