Again, my plan is simple; let’s say that faced with a troubled loan (the house is worth far less than the loan, the rate may readjust soon and the owner can’t no longer make payments), the financial institution that owns the mortgage would discount the amount of capital to address the current situation; for example, if the house is only worth $300,000 and the mortgage amount is $450,000, it would re-set the mortgage at $250,000 which would make possible for the homeowner to either keep the property or liquidate it.
This would leave that same owner still owning the bank the $200,000 difference, interest-free, that would be carried forward as a deed-restriction and/or on the individual’s credit records, in the form of a floating debit following any transaction that he might enter into in the future. For example, if that same person keeps the home and then sells it ten years later, any capital gain would go to reduce or satisfy that interest-free debt. If the property is sold right away, the ex-owner would continue to carry that debt that wouldn’t be counted towards his personal financial statement, but would remain available to offset any future real-estate or financial capital gains. There would be no government guarantee; the system would be painful on financial institutions, very generous to those troubled homeowners, but extremely fair to folks like you and me who just live below their means…
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