Give distressed homeowners a way to stay

Richard Rychtarik, Las Vegas

Tuesday, July 1, 2008 | 2:03 a.m.

Given the state of the home foreclosure crisis, speculators who lost money or will soon lose both their money and their credit rating should be allowed to fail. But what about those occupying their homes and, for whatever reason, facing foreclosure?

For these homeowners, “save the home” government rescue schemes are not proportional to the problem. These schemes seem to be oriented more toward saving lenders than homeowners.

Setting aside all past and present financial flimflam schemes, there is a straightforward resolution. Simply have the lender and the homeowner agree to a principal repayment moratorium. The government doesn’t need to ask that lenders reduce the amount of principal owed on the home. Lenders can foreclose and resell at the reduced valuation anyway.

Nor do we need the government to guarantee or back these risky subprime loans. The solution is to offer the troubled homeowner a reasonable 30-plus-year, fixed-interest, market-driven solution. The homeowner would be required to pay only the interest for — pick a number — three years, thereby reducing the payment by about 20 percent relative to a combined principal and interest payment.

After that time the full payment would resume, with the deferred principal payment amounts added to years at the end of the loan. The delayed principal payment would probably be made sooner rather than later because few homeowners stay in the same home more than 15 years.

If the homeowner cannot meet this new obligation then market forces, not government action, should prevail. Let’s face it, if a home mortgage is so underwater relative to its market value, the homeowner will probably walk anyway.