How do we solve the current housing market situation? I got some suggestions...

I have been pondering on this topic for a while now and I think there are a few drastic but efficient steps the mortgage industry can take to ease or even solve the current state of the housing market and furthermore prevent future declines such as this one.

-Residential Mortgage Loans to investors should carry a minimum of a 10% down payment requirement.

Coming from a real estate company that specializes in investment property, this is pretty radical. However, in my opinion this rule would cut down on the wide majority of speculator defaults. In our day to day business we apply conservative investment principles that require a 10% down payment even when a lower percentage is possible. For those that think this would be too rough and the investment community, I would pose the following question: Which investment community are you referring to? The late night TV informercial "you don't need any of your own money or credit to invest" kind of investment community? Looking at bank foreclosures every day, I can't tell you how many times I have seen foreclosures that were just property "flippers" who did not have enough money to either finish the repairs or sustain the holding costs on the property. Another way to look at it is to observe the commercial loan community. No matter how low the rates get, the 20% down payment requirement for these loans is never lifted and for that reason you get an "invested investor" that will not let the property go if things don't go exactly as planned.

-All adjustable rate mortgages to primary residence homeowners should be rewritten to carry fixed interest rates equal to market value plus a premium (1%) and late fees added to the back of the loan.

Although I can already feel that this is going to rattle many people's chain, I think it is possibly the only way the flow of defaults can be slowed down enough for the market to breathe. I am aware of the fact that this would constitute what many would call a bail out. But at the current state the two choices available to lenders are either the restructuring that I am suggesting or bankruptcy. At this time, lenders need borrowers to resume making their payments or face the fate of many companies that have closed their doors. To those that think this would be too rough on the companies, I would say that this would be somewhat of a retroactive penalty to pay for the many irresponsible products (and therefore profits) that they posted during the "good old days". This is not absolving the borrowers from any blame for some bad financial decisions on their part. However, when you have a vital industry such as this one that can (and has) affected global markets you have to look at the big picture and make some tough decisions.

When I wrote this, I expected it to be controversial. Please give your take on this issue.

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