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What's wrong with this plan?
blaisepascal
To deal with the so-called "toxic assets"...

1. Stop-loss mortgage failure risk by having HUD place a standing bid on all forclosure auctions of 70% of outstanding principal for properties which meet guidelines (primary residence, loan made before 1/1/2009, bundled in a MBS, etc). The idea isn't to stop foreclosures, but rather to limit the losses associated with them, and thus return market value to the "toxic assets".

2. Properties purchased by HUD as part of 1. are immediately relisted on the market at HUD's purchase price, and remain on the market until they sell at that price.

3. Unsold properties are managed by HUD as rental properties in support of existing HUD housing programs.

The idea isn't to prevent foreclosure (which can be managed by a separate program if necessary), nor is it to bail out banks by giving them money, but rather to detoxify their assets so they have value again.

The government wouldn't be buying complex financial instruments of unknown value, but rather would be buying real property and holding it until its value rises again.

Why won't it work?

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Because of this:

3. Unsold properties are managed by HUD as rental properties in support of existing HUD housing programs.

Any such thing is a big ol' NIMBY. I agree that this is wrong, but that's how it is, and it will bring property values down further.

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