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Problem statement:

Mortgages were sold with ARM to people who could not afford the increased monthly payments which could occur.


  1. Make ARM illegal unless the borrower qualifies for the maximum monthly payment which the loan would require.
  2. To prevent default on the loans, pass a law to require that any borrower can request a fixed rate, 30 year loan to replace their current ARM. The fixed rate would be at 7.5% and the loan amount would be adjusted down by a second mortgage on the property to be secured by the federal government. This second mortgage to be a fixed rate loan at 5.5% with payments optional for up to 30 years. A payment to the second mortgage principle and interest to be paid upon any transfer of the property if any equity is available on the first mortgage upon transfer. The second mortgage to be paid in full no later than 30 years in any event or the property reverts to the federal government. The amount of the second mortgage would be negotiated by the ARM lender, the buyer and the federal government.
  3. Any person defaulting on a mortgage would not be qualified for a mortgage loan for a period of seven years from the default.
  4. Same fixed rate loans available for first time home buyers.
  5. Same fixed rate loans available for people who have already lost their homes due to ARM loans.

ARM - Adjustable Rate Mortgage

2011 Note: The rates used in this analysis seemed reasonable in 2008. How things have changed since then; should have said market rates.

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