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September 24th, 2008
04:41 PM ET

A BETTER mortgage rescue plan

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/09/24/art.howard.sosin.jpg caption="Howard Sosin, co-founder and former CEO of AIG Financial Products."]Editor's note: Here is a "Mortgage Rescue Plan" from the founder of a company that later created many of today's complex financial products. We'd like to hear your ideas, too. Thank you for sending us your comments.

Howard Sosin
Co-Founder and former CEO of AIG Financial Products

THE PROBLEM: The American economy is on the brink of a financial melt down that has been caused by a failure of the housing market. Our country needs a comprehensive solution to this problem that addresses the issues of both Main Street and Wall Street.

From Main Street’s perspective the problem is that housing prices, which were only supposed to go up, have fallen dramatically and continue to fall. Falling prices have exposed weaknesses in mortgage lending – an industry that has relied on price increases to hide poor lending practices. Extremely low down payments and complex interest rate structures that allowed buyers to acquire houses beyond their means have led to defaults and foreclosures. Main Street is hurting.

From Wall Street’s perspective the underlying problem is that mortgage backed securities have gone down in value, and even at dramatically reduced prices investors are unwilling to step forward to purchase securities. Furthermore, financing for mortgage backed securities is increasingly difficult to obtain, which forces sales, which exacerbates the problem. Wall Street is hurting.

FULL POST


Filed under: 360° Radar • Economy • Howard Sosin