Work like 1929 to save 2009

If in 1929, and the years after, we did 'give away' seeds to farmers, why not give away money to homeowners today?

First, place a moratorium on all residential foreclosures of owner occupied homes.

Second, allow the moratorium only with these conditions. The owner and his/her family continues to live in the home. The owner does not make any payments of any sort until adjudication of the mortgage by a local board. The owner makes all other payments of bills and debt until adjudication. The owner's credit is frozen until adjudication.

Those two steps would take place in a courtroom and through the owner serving 'notice' to the lender or the service agent of the mortgage. The owner would have to prove at a hearing that no other borrowing has occurred since sending the notice and that all other debts and bills are being paid.

Step three would be to empower local boards to settle the mortgage.

The board could determine that the matter is beyond their scope and ability to handle and the matter could go back to bankruptcy or foreclosure.

The board could takes some or all of the following steps.

Order a market appraisal or other real world appraisal of the home.
Order tax records, financial reports, and income statements for the borrower.
If the owner does not appear solvent because of predatory lending practices, the board could seize the property from the lien holder. Once seized, the board could reset the loan balance and interest rate as well as the monthly payments. All this must be done to a reasonable formula that balances debt to income and the 'greater good.'

That greater good would not be keeping people from bankruptcy. The process would be very much like bankruptcy with the owner unable to borrow any more money from any source during and after the process. After the process, the original loan would be moved from one 'bank' to one of the bailed out banks, partly owned by taxpayers. And, remember, taxpayers would set on all the boards.

Home owners who survived the process would have a mark on their credit histories for a length of time to be determined by the amount of assistance given by the local boards.

The private banks would get a lump sum settlement equal to the new appraisal value of the home without attorney or real estate fees, a small savings.

Economic contraction would be smaller than if all the owners stopped paying all their bills.

The banks which have been bailed out by taxpayers would get fresh loans on their books as well as interest income.

Am I being naive?