There’s always something to howl about.

The Real Estate Bailout Act of 2008

When successful financiers achieve a certain level of success, they up the ante and practice social engineering. Robert Rubin, Jon Corzine, and Hank Paulson  advanced to government service after piling up the pesos at Goldman Sachs (in financial circles, we say those two words with hushed reverence). After decades of whipping and driving the markets, the titans answer the call of noblesee oblige and decide to play with EVERYBODY’s money. While I haven’t risen to the austere positions Messrs Corzine, Rubin, and Paulson have, my friend Nick and I

have a little idea about how to save the American real estate market.

Let’s start with the premise that lenders are taking 20-30% hits on short sales. Then, let’s have the US Treasury loan 30% of the balance, of the aggregate debt, to homeowners whom request it, in order to pay down the first mortgage (or second mortgage). If I have $200,000, in aggregate liens against the property, the US Treasury will lend me $60,000, to pay down those aggregate liens, to $140,000. This reduces the lenders exposure.

What type of loan will the Treasury make to homeowners?

The term can be for the lesser of:

1- the remaining term of the first mortgage

2- 65 less the age of the primary borrower.

The interest rate can be the corresponding term treasury rate, plus .5% (for administrative costs). Maybe we can use some of that “yield spread” to coerce a few mortgage brokers to “originate” this government debt (okay, that was completely self-serving). For a 42 year old, with a 27 year term on his first mortgage, the term of this new government loan (in second position) would be 23 years (65-42=23). If a 23 year treasury bond yields 4.1%, than the note rate for the new loan will be 4.6%.

The borrowers never have to make a payment on this debt; it accrues like a negative amortization loan. In the aforementioned example, the balance would grow to about $168,000, after 23 years. With a first mortgage paid down to $140,000, we’re banking on the future value of the property growing to $308,000, by the year 2031.

When the house is sold or refinanced, the government loan is paid off. We’ve essentially solved the liquidity problem, bottomed the real estate decline, and “helped” real people by using government funds.

What if the borrower skates on the loan or short sells the property? Moreover, what if the real estate market NEVER comes back, and the property is never worth $308,000, in the next 23 years?

1- Make the remaining loan balance transferable to new properties.

2- If that lien is NEVER satisfied, deduct the balance from the year 2031 net present value of the borrower’s retirement entitlements’ account (social security and Medicare).

The program is completely optional.

This act will inspire confidence in the government-sponsored retirement entitlements programs; nobody under the age of 45 REALLY believes those programs will be there for them, anyway.

We can stop the housing price decline, put more discretionary income in the hands of homeowners (to spend us out of the recession), save millions of homeowners from foreclosure, and shore up the financial system of this country, all while inspiring a generation’s confidence in government retirement programs with the Real Estate Bailout Act of 2008.

Memo to Senators Mc Cain, Obama, and Clinton: While I’m certain some Goldman guy would sell this program to the American people more effectively,  I’d consider a Cabinet position. Inquire within.