You know when your computer crashes you go back and set a restore point. This is a point where the problem did not exist. It has gotten me out of many tight spots in computer land. But maybe we need a restore point for the economy. Maybe we need to go back to a point before the big crash when everything still worked. Well, here is my Restore Point Solution for our sputtering credit market. The Restore Point Solution is based on four suppositions.
One. The economy is dead in the water because the middle class lost their largest asset--their house.
Two. The economy worked before the mortgage crash broke the housing market.
Three. The mortgage crash broke the back of housing because it wiped out the basics of lending.
Four. If we fix the broken mechanism, then the housing market will return and the economy will start moving again. This will work because the housing market worked before. Not unlike a restore point on a computer, we go back to when the economy worked before.
The Restore Point Solution
One. every second mortgage by law has to be subordinated regardless of Loan to Value ratios if the borrower is credit worthy. Why this? Because the second mortgages are bricks on the first loans. They are strangling the primary mortgages because the banks have not adjusted CLTV Combined loan to value requirements. This is stopping millions of people from refinancing who are credit worthy. Refinancing is the way the middle class clears the board. It is the way they pay down debt, send kids to college, buy cars, do home improvements, buy boats, motorcycles, appliances, give themselves breathing room to catch up. Refinancing is critical to the middle class because it reduces their payments and gives them cash flow. It gives them what the rich have with their reserves, an emergency fund.
Two. You allow credit worthy people to refinance regardless of Loan to Value. One in four mortgages are under water. Again, high combined loan to value ratios are killing loans. People with eight hundred FICO scores are not being allowed to refinance because their homes are upside down. This is wrong. These people will stay in their homes if allowed to go to a lower rate. This is squeezing off the credit market for the middle class homeowner who has done everything right. Tying a loan to an asset that has depreciated due to extraordinary circumstances is bad banking. You must get the money moving around again. This would ignite a boom in refinancing. A literal boom of cash would be unleashed.
Three. Allow people to take money out of their homes and tie it to fifty percent of pre crash levels. In other words, we give people equity again in their homes. This would allow people who truly have equity but because of the extraordinary downward pressure of foreclosures it has artificially pushed the value of their homes down. This would free up millions of dollars and inject it back into the economy. Fifty percent of pre cash levels would give the banks protection.
Four. Credit Amnesty. Millions of people who had perfect credit have been wiped out by the Crash. They were good payers and never had a late. Now because of extraordinary circumstances their credit scores have fallen and they can no longer enter the credit market. This is wrong. The Crash is as much a catastrophe as 9/11 in that it was not the fault of the people. The middle class had no hand in the terrible decisions of the banks. They were the victims. And the victims need to have credit amnesty. If people had good credit before the crash then they should be forgiven and allowed to re enter the credit market. You can not have an economy when only one third of the people can participate.
Five. A permanent buyer credit of ten thousand dollars. Not first time buyer credit, but any buyer credit that will come off their taxes. This will jump start buying again. But it must be permanent until the housing market returns to boom levels. Then it can be stopped. The pump must be primed to get the machine rolling again. This will address the housing market wiped out by the crash.
Ok. That's it. Now, all we have to do is go and set that restore point on the computer. Let's see what button does that....
Bestselling author William Elliott Hazelgrove is the Hemingway writer in residence for the Ernest Hemingway Foundation. He has written four novels, reviews and features for USA TODAY and been the subject of stories in the NY Times, LA Times, Chicago Tribune, USA Today, and NPR'S All Things Considered. His forthcoming novel is Rocket Man. More information can be gathered at