There’s no doubt that the mortgage meltdown will be one of the most
important issues facing the Obama administration. Finding a logical
resolution won’t be easy. It will require a solution that’s balanced
and beneficial to both mortgage holders and lending institutions. While
there’s no magic answer for such a complex problem, here are some ideas
I believe Washington should consider.

  • Discontinue adjustable rate mortgages. It’s true
    that today’s stricter lending requirements and more conservative loan
    limits have largely eliminated these types of loans, especially the
    interest-only mortgages that are causing so much trouble. But there are
    still ARMs available, attracting buyers who must stretch their finances
    to become home owners. The problem with ARMs is that they are temporary
    loans by their very nature. They were initially intended to provide a
    way for first-time buyers to establish credit so they could convert to
    a fixed-rate loan at the end of three or five years. Today, however,
    many ARM borrowers can’t find permanent financing and are trapped with
    higher payments or balloons that require the entire loan principal to
    be paid off at once. That’s why ARM loans continue to have a
    destabilizing effect on the entire real estate market.
  • Require lenders to refinance ARMs into fixed-rate mortgages.
    The federal government should require lenders not only to refinance the
    ARMs they originated into fixed-rate loans but also to make loan
    modifications as needed to extend the life of the loan so that
    borrowers can afford the monthly payments. This would allow many more
    home owners to avoid foreclosure—which would benefit lenders, too.
  • Reappraise properties in overappreciated markets.
    Mortgage holders in pockets of California, Florida, Nevada, Arizona,
    and other areas where home prices showed precipitous price run-ups in
    2005 and 2006 should have their properties reappraised to reflect
    current market conditions. Lenders should be required to convert these
    troubled mortgages to fixed-rate loans based on the new appraisal
    values. At the same time, lenders should extend loan terms in order to
    ensure they are repaid the entire principal.
  • Limit real estate equity lines of credit. Lenders
    should stop giving home equity credit lines for more than 100 percent
    of current appraised value and start following more prudent measures.
    They should introduce equity credit lines based on the actual equity in
    the property, rather than the value of the real estate.
  • Give tax credits to home owners who pay on time.
    Borrowers who are current in their home mortgage repayment schedules
    should be rewarded with tax credits. Such a stimulus package would
    assist the average American mortgage holder in this current financial

Writer Darrell Gibbs is the broker in charge of Gibbs Realty and
Auction Co. in Easley, S.C. The company is one of the largest privately
owned companies in the Southeast that works exclusively with REO and
bank-owned properties throughout the Carolinas. He can be reached at
864-855-3929 or