George Soros thinks we should when it comes to mortgages. Since 1795 Denmark has had the same system of handling mortgages. A key piece of this system is that the originator of the mortgage holds it and services it, which is what we used to do here. The innovation in Denmark is the existence of a pool of mortgage bonds directly tied into the mortgage itself. So that, when you take out a mortgage, a bond for the amount of the mortgage is issued and traded in a securities market. If the price of your house increases, so does the value of the bond. The reverse is true; house prices decline and bond values also decline. You can pay off your mortgage in the normal way or by buying a bond at current prices; in a declining market, you will not have to pay the remaining balance of your mortgage, you can simply buy a bond which will cover the amount due.
Soros thinks that, through Ginnie Mae, we can convert to such a system. But, first we'd have to make sure mortgages reflect current value. Securitization does not make that an easy task.
No comments:
Post a Comment