Marc Boyajian

We know the main reason we are in the situation we are is due to the real estate mess we have created for ourselves. We also know that there are very smart people who are handling the situation and we appreciate that. But there are times when simple people, or an average person like me, may see things the big guys don't see due to the magnitude of the problem, yet it may be the best possible solution they offer. This I think and hope is one of those times. 

We are in a serious crisis, as serious as a foreign country attacking us. In times like these, the only way to win is for the nation to come together and each citizen to contribute voluntarily for his country's defense. The proposal I have is on a voluntary basis and not mandatory. It is important to have safeguards and oversight to prevent abuse by any party involved.

Foreclosures:

Foreclosures are the main reason the notes are worth almost nothing, and we have a big supply of homes in the market that are bound to be foreclosed or are already in the process. If we solve that problem we can solve many of the problems altogether. Here is my proposal:

As we know, most knowledgeable business people will jump on an opportunity to make the most money when opportunity presents itself. I would think this is not an exception.

Well-to-do and savvy business owners, individual or corporate, who know they will be around for the next five years and are happy with that particular employee can assist their employees in the following manner:

Ø  Employer contributes 15% of the monthly mortgage payment and property taxes of his employee who is in default on his home mortgage and obtains a 30% share of the property (this can be 20/40 or 25/50).

Ø  Employer?s contribution is only a portion of the payment; no down payment and closing costs are to be involved.

Ø  Bank absorbs late payments of six months, plus brings property taxes current

Ø  Employee lives in property for a minimum of three years, five is better

This will allow the employee to stay in the home, which in turn will keep the property from going into foreclosure, which in turn will help reduce the inventory of properties in the market, which in turn will keep values in the neighborhood from dropping further.  The cooperating employer will build equity on the property in the next 3-5 years. He will have another tax deduction, the interest on that mortgage plus the property taxes. Employee should be happy with this arrangement because otherwise he would have nothing left anyways, he would have lost his house.

The lender will not have to foreclose and incur foreclosure costs and diminished value and return on his investment. Those costs can add up to anywhere from 10-20%. So forgiving the late payments and bringing the taxes current is minuscule compared to the foreclosure expenses and the devaluation of his investment.

If there is a second lien, the holder of the note to accept deferring interest payment for five years and cutting the principal into half. Not doing so, the other alternative is the second lien under these circumstances would have been wiped out anyway. This way in 5 years the holder of the second lien can collect 50% of the principal and the accrued interest, which will pretty much come close to his initial investment, give or take few hundred or thousand dollars. It is still much more than what he would get if he chose to let the property go foreclosed. This will also help in saving a lot of second lien notes from going bust and hurting the economy further.

If an employer cannot do this, we can open the door for any investor who is willing to get involved. In both cases we can offer tax incentives, such as deducting twice the amount of the interest they are paying.

This will reduce inventory in the market, mortgages will be paid, people will stay in their homes, and the recovery will be much faster. When the real estate market is good, everything else follows. A healthy economy helps real estate prices appreciate, a few dollars monthly investment will produce good returns to employer and employee, financially, morally and emotionally. 

(Refer to example 1 below.)

Unemployed:

The economic crisis has impacted jobs severely. We have many who are unemployed and many will be added to the unemployment lines if we do not take action. Many will qualify for unemployment insurance benefits, but finding a job in a timely manner with these economic uncertainties will be difficult, chances are they will run out of those benefits before they find a job. I suggest the following:  

Unemployment insurance to pay the unemployed individual 65% of his salary and the employer, who otherwise would lay off this employee, to pay the remaining 35%. In return, employer gets twice the amount (35% of salary) he is paying in salaries as tax deduction, and if the employer keeps the employee after nine months the employer gets twice the salary as tax deduction for the following year. This will keep the employee at his job earning a living that in turn will be able to continue a normal life and spend as usual, providing for himself and his family and not become a burden on the economy. The employer will benefit in two ways:

1. Keep his employee so as not to incur additional costs and time of recruiting and training an unknown employee
2. Benefit from tax deductions

(Refer to example 2 below.)

Unemployed with no hope of finding a job soon enough:

Create a trust fund for donations and ask the public to participate to help extend unemployment benefits, donations to be tax deductible at a rate of twice the amount of donation.

This will provide the unemployed ample time to find a job, which should not take that long since the chances of the economic recovery will be much faster and less painful. Of course, we have to have safeguards for anyone not to abuse this help.

I have faith in the people if we explain to them that helping the unemployed in this way will help the entire economy, they will understand and help as they would during any disaster here and abroad, and this is as big if not bigger than a disaster.

(Refer to example 3 below.)

Example 1.       A house with a mortgage of $200,000 with a payment of $1300 per month and a property tax of $200 per month has a total obligation of $1500 per month. Employer contribution will be $1500 x 15%= $225 per month to qualify for a 30% share in the house.

                        In case there is a second lien of $50,000 at 10% annual interest rate, the second lien holder to reduce the loan amount to $25,000, and the accrued interest will total $25,000×10%x5= $25,000. At the end of the 5-year period the second lien holder will be entitled to $50,000. At the end of the 5 year period and since the economy will not suffer as much as it otherwise would, chances are the property will appreciate in value to qualify for a refinance or sale at a decent price.

Example 2.       If an employer has to lay off an employee who is making $2,000 a month salary; due to financial stress which he has to prove it is the case, instead of laying off the employee, the unemployment insurance to pay 65% or $1300 per month on behalf of the employer, and the employer to pay the remainder 35% or $700 per month to keep the employee. The employer then has the right to deduct twice the $700 equaling $1,400 a month from the employer?s income taxes.

Example 3.       A commission to be assigned to manage funds deposited in the trust fund for the unemployed to collect, monitor and disburse the donations to the unemployed. If a person or an entity donates to this fund $5, that person to be entitled to deduct $10 from income taxes owed to the government. The purpose is to give a powerful incentive to donate generously.

Taking these actions will expedite the recovery without costing the taxpayer billions and billions of dollars.

I will be more than happy to answer any questions.

Good luck!