How YOU Would Solve the Mortgage Crisis

solve the mortgage crisisWe asked, you answered. AOL Real Estate's post on the idea that banks should be forced to offer principal loan reductions on underwater mortgages brought an avalanche of comments, including some calling for a grassroots revolution. One reader suggested, "Perhaps EVERYONE should STOP paying their mortgages for a year, not just a few, EVERYONE FOR ONE YEAR. Maybe the banks would listen then. Greedy bastards."

Others were less extreme, but made the point that the U.S. government bailed out the banks more than a year ago and, as wrote BJW, "now it is their turn to help us out of a jam."

It was a thought echoed by Reza, who called it "unbelievable" that "banks prefer to go through foreclosure, auction a property and let the property go -- most of the time at one third of the original loan, but [are] not willing to reduce the principal." Reza added that lowering the amounts of a loan "would definitely stimulate the economy and will help desperate families to save their home and have a better quality life. How stupid and arrogant of the banks/lenders. After all, they [had] their loss covered by various insurance and the government help."

Reader Mike knows from whence Reza speaks. He wrote: "I tried every reasonable way to save my family home. Standard Federal would not even talk to me about it. They eventually put me and the kids on the street. The sad part is that they then sold my home for less than I was trying to negotiate with them for on a reduction!! I could have saved my home and they could have made more money but instead we both lost."

Principal Reductions vs. Short Sales

PR pointed out the obvious: "The banks are already doing principal reduction[s] but in the form of short sales. If the banks are willing to take a reduced amount for a short sale [this is when the current owner needs to get approval from their bank to sell the home for less than the amount due on the mortgage], then why not just reduce the mortgage via principal reduction and let people stay in their homes?"

As for the idea that a reduction in mortgage principal would put money into people's pockets that they would then turn around and spend, spurring a economic recovery -- most felt it was a great concept. Carol wrote: "This plan should have been done long ago."

Steve suggests "you write your congressmen and senators to support this mortgage reform. It's not too late to get our country and economy moving in the right direction. The choice to be heard is ours to make!"

Overall, readers' sympathy for banks was pretty much non-existent.

Grace E. holds lenders and big banks "responsible for the housing problem." She says, "This is a good time to make every one of the people running for election or reelection [takes a] pledge [that] they will pass a law to make sure these entities reduce all underwater mortgages."

Lack of Personal Responsibility?

But not everyone was sympathetic to underwater homeowners.

Jeff wrote: "Principal reductions? I thought people were responsible for their own lives and decisions. . . . You make bad decisions, buy more than you can afford, drain your home equity irresponsibly and now you want the rest of the responsible Americans to pay for your bad decisions? Blame the banks, blame the government... I think the lack of personal responsibility is at the heart of this problem!"

And then there was the "fairness" question. Elvie expressed the sentiment that "If mortgage lender[s] or banks can do reductions of underwater properties they should do that with everybody. I'd been paying my mortgage all these years [and] not refinancing to get cash back."

Reader James Thomas was harsher: "How 'bout, move out, get an apartment like I did till I could afford my home. I also worked three jobs to get my down payment. Stop leeching off of hard-working Americans like me and get another job. They are out there."

And from reader JB: "Who's going to take the loss on each mortgage write-down?? Not the banks you fools; it will be the taxpayers. The banks don't own the paper, investors do, like public employee pension funds, private 401(k)'s. There is no such thing as a free lunch."

Russell D. Salyers agreed and also wanted to know what the government would do for people who made responsible choices and while not upside down on their loans, have seen their property values drop. "I don't believe that people who made irresponsible decisions should be rewarded for them. You know how much money you make, you know how much of that you can spend on housing. The banks' biggest sin was in not caring what kind of mortgage you applied for. As for absolving people of their promise to pay, I believe that to be ridiculous.... It sounds nice to let people stay in their homes, but what about the folks who made responsible decisions? What will you do for [them]?

While some readers suggested reducing everyone's mortgage -- underwater or not -- Fairfaxman called that "welfare." He wrote: "A one-time loan modification for only underwater mortgages is the best and most reasonable idea I have heard yet. It should be automatic with minimal paperwork. The banks get to eat the crap they sold the public, thus no cost to the taxpayer. And no, I would not benefit from a loan modification as I do not meet the requirements."

Also see:
Realtors' Latest Challenge: A Surge of Squatters
Low Refi Rates Are Great, But Not for Everyone

How to Buy Foreclosures

VIDEO: All About Short Sales

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