Flawed Belief #1 -- Home Financing should require the pay down of equity...
If you believe mortgages should "require" the pay down of equity, you are caught in a cognitive trap of the bankers and societal design. A simple fact. All mortgages that require the pay down of equity are, in fact, "derivative banking products" when compared to a "pure" Line of Credit. The most fundamental consumer belief that mortgages should require the pay down of equity is a flawed belief.
Flawed Belief #2 -- "For Profit" consumer banking is a "good thing"
If you have been drugged by the "capitalism is the best" mantra for all service industries, you are caught in a cognitive trap of the bankers and societal design. In order to increase profits each year, bankers have to make more money off each of us each year (assuming the population isn't growing fast enough to satisfy their growth requirements).
Capitalism in industries such as consumer banking, health care, energy, and insurance creates cannibalism. The only way to increase profits every year is to increase the money made off of each consumer each and every year. If we had truly competitive markets capitalism would be great. We do NOT have truly competitive markets and in fact that's merely a philosophical theory that has been sold for so long no one realizes it was just a theory. We've never had it in large industry and we never will. The very concept of truly competitive markets for major industries is just another "cognitive trap".
The NEW Mortgage Should be a "pure" Line of Credit
The optimal configuration for financing a home or real estate is an Interest Only Line of Credit issued by the US Government, your state government, a local municipality, or a non-profit entity (truly non-profit). Consumer banks (if they continue to exist) could be included in the transaction, but the fees should be flat fee commissions for transaction processing. Bankers of the future should be like nurses caring for the financial health of the citizens. It's coming folks... just not sure if it's now or later.
These credit instruments would provide steady income in the form of interest to the municipalities and our own governments instead of for-profit bankers, and they would provide a "built-in interest bearing savings account" which is also a "working capital account" for citizens.
All references below to "Line of Credit" are in fact referring to a "pure" Line of Credit which would have appropriate renewal clauses and no "mortgage-ish" repayment term.
Line of Credit Realities:
- With a Line of Credit, as long as a consumer pays his/her interest only payment, the home would remain in the consumers' safe keeping.
- If the consumer chooses to pay down his or her balance, the consumer benefits in the form of "saving on interest".
- The Line of Credit on a Home is the consumers' savings account, and it could be considered "interest bearing" since all payments that reduce the line value also reduce an interest payment.
- If and when a consumer needs money for a purchase, or a home improvement, the consumer has the option to withdraw his or her own funds or make the purchase with a credit card tied to his/her Line of Credit to make such a purchase. It's simple.
Benefits of a "pure" Line of Credit as a first lien:
- With a Line of Credit as a first lien on a home, a consumer is FREE FROM MORTGAGE BANKING and refinancing.
- With a Line of Credit as a first lien on a home, we have NO NEED for ANY MORTGAGE OVERSIGHT. NONE.
- With a Line of Credit as a first lien on a home, OUR GOVERNMENT (federal, state, local) is the beneficiary of all interest paid on homes.
What general guidelines would be need:
- Down payments of 10-20% are appropriate
- A review of a home's value on a regular basis would be required to verify credit lines. Reviews from 2 or 3 unrelated appraisers would go a long ways to preventing fraud.
- If a home's value falls to the point were the credit line is no longer fully protected, the consumer would have the option to pay down the line of credit or accept a higher interest rate on the unsecured portion of the debt, or the debt could be partitioned for higher interest on unsecured portion. There would/should NEVER be any "major" mortgage crises again. Ever.
Rumor has it that this is how home financing was envisioned by Thomas Jefferson and others in 1776. The Declaration of Independence called for "simple banking" via a share oath to protect lives, fortunes and sacred Honor.
Continue with the same mortgage options, but enable line of credit type access to equity...basically making the mortgage a line of credit as mentioned above. The concept of needing to refinance an entire mortgage to gain access to equity is last century.
In my opinion, you have ALL become too GREEDY and too CONTROLLING to continue with the consumer lending game in its current form. To think you all have been allowed to play this game for this long should be viewed as a gift. The world has become too complicated, and everything has fallen out of balance. Some things need to be simplified to allow further growth in a complicated world, and home finance is on the top of my list for human simplification. Can one person make a difference? In this case, no... not without support of a lot of others. It'll be interesting to see who shows up for this battle and who wins this tug-of-war.
Best of luck,