The
S.M.A.R.T PLAN
Stimulus thru Modification, Adjustment, Restoration & Transformation
ECONOMIC RECOVERY
(A humble perspective)
As we continue to debate the merits and effectiveness of stimulus programs and the latest attempts at rejuvenating an ailing economy, the reality is these "Economic Stimulus" packages and programs, or more appropriately named ‘Economic Tourniquets’, will do little of what is truly intended - engender spending, boost hope, or bolster consumer confidence. It will, however, stem the bleeding, if only for a minute. Fundamentally we must increase the consumer base in order to increase consumption. We must turn non-viable buyers and consumers into viable ones to go along side the creation and influx of disposable income, i.e., various stimulus attempts and programs. Otherwise, we can do little more than watch the train as it leaves the tracks and heads for disaster… But even before we do this we have to restore one thing… "The American Dream".
The American Dream is what many of us have been born and bred to believe, and have passed on to generation after generation. It is the hope and belief that if you work hard, focus and, follow a few basic principles and rules you too can achieve the "American Dream". Today, however, that dream is fleeting at best. It has become the swan song for an economy suffering from distrust, disbelief and most importantly, a dead dream. We have to consider, and perish the thought, is there actually an "American Dream"… Can we still achieve it? And if so, what would that dream look like now… Simply put, in order to restore consumer confidence and engender spending, you must first restore the American Dream…
Here’s the million dollar question, the one no one on the hill wants to ask. What is the American Dream? Or more simply, if you polled one million Americans, what would they say the American Dream is, in its simplest form?
Stop guessing! … While there are a myriad of answers, each no more right or wrong than the other, you have to look at it from a generational perspective... It is simply … home ownership!!! Owning your piece of the pie! Owning your piece of America. Having your piece of the Dream!
The Problem …
The Problem …
It is not about the redistribution of wealth, the cry of the lower classes and sympathetic pundits. It is not which political party handles money better or has better fiscal policies than the other. It is about the circulation of wealth or simply, the circulation of money. If it is our intent to stimulate the economy, we cannot do so within the same body of spenders and consumers – they will only consume in ways that are familiar and comfortable to them, and historically speaking, not in ways that stimulate the economy.
Today, a minority of the population has perfect or unblemished credit, typically they are wealthy well-to-do consumers, predisposed to saving rather than consuming. The remaining majority, the ‘true’ consumers of the world are the ones that consume. They are comprised of entrepreneurs, small business owners, the self-employed and general laborers, a group and body that by their nature are those who typically and regularly consume or simply spend.
To this point, those that are wealthy who are arguably the only ones left who can comfortably consume will not consume at all. In many instances, they already have much of what needs to be consumed; homes, cars and other ‘big-ticket’ items. But those; the entrepreneurs, the self-employed, the now credit blemished, whom many argue have lacked control and are the cause of much of this – which I believe to be debatable, are the ones who when given the opportunity to consume will consume and thusly, create economic stimulation and consumption.
Continuing to pump money into an economy, through banks, in the ‘hope’ that banks will loan the money and consumers will actually spend it, effectively recycles money through the same numbers of consumers. It is a fifty-fifty proposition at best and has thus far proven to be an ill conceived gamble. Banks did not make any additional loans. Consumers either saved the money they got through the stimulus check or simply paid a bill. In both cases, the possibility of that money getting circulated within the economy was effectively eliminated.
You must give not only the incentive, but the ability to those predisposed to consume, spend or lend, to do so. To do anything else is to continue to depend upon those who, historically and characteristically tighten and/or constrict their spending when faced with these types of economic situations. In essence, we’re hoping that they will do something outside of their character, and practice.
Fundamental Flaws
A society based upon credit has as a fundamentally flawed foundation: credit. Credit is one of the most valuable things in life. As a debtor’s nation, we have put tremendous importance on – one’s credit; is hard to build, even harder to maintain, impossible to fix or repair, but most importantly, and what speaks to the current situation we are in as a nation – is easy to destroy!!! The system is inherently flawed!! It is a system designed to break and eventually collapse – which is where we find ourselves in today’s current financial situation. It has no failsafe. Worst of all, it has ramifications that cause lasting damage that no one is looking at, or better yet, even considered before it was designed and put into action.
To give someone additional monies in the form of disposable income; the premise and idea behind giving individuals a stimulus check and pumping money into the economy, you must first by definition give them income to begin with – in other words a job.
With more than 20% of jobs requiring a ‘credit check’ and rising, our ‘flawed’ system has created the inability for tens of thousands of individuals, to obtain those jobs whether or not they have the acumen, experience or expertise in those fields. You have in effect, helped to maintain unemployment numbers at levels unseen in decades. We have as a nation by our own doing, perpetuated a flaw, and it has manifested itself in ways that we did not foresee.
The Solution(s)…
The solution – increase the number of consumers that can spend and consume. Allow individuals and businesses alike to fix and repair their credit – making them more credit worthy. This results in additional buyers in the market that can actively and effectively consume. New credit worthy customers/consumers can buy homes, cars, electronics and other big ticket items that have a tremendous bearing on our economy. The government must create incentive for not only people but businesses to spend money. They must go beyond the limited thought, and perspective of just creating additional disposable income, they must create – HOPE!!! They must bolster consumer confidence by allowing people and businesses to fix and or repair their credit, therefore, allowing them to become viable consumers within the market place, resulting in; an increased consumer base, job creation, consumption, and economic stimulation. In these days and times, it’s HOPE manifesting itself in the form of real economic stimulation.
In short, creating new credit worthy customers that can now consume in today’s market under guidelines and programs more specifically designed to make sure they consume properly – according to their ‘actual’ where-with-all, not an inflated or leveraged one.
Allowing people to correct their credit eliminates the sense of entitlement, and the ‘free-ride’ mentality that permeates today’s economy with stimulus packages and bailout programs. It gives those that have struggled to maintain reason to feel better about helping those that have not been able to do so. It demonstrates a true sense of ownership and responsibility. It rewards those that have; learned from their mistakes, chosen to walk a different path and have become diligent in their fiscal management. It provides reason, chance and opportunity for everyone to be credit worthy and financially upstanding. Most of all, it unifies us in what we as a nation can collectively agree upon when doling out financial help.
Two - Make it against the law to hold one’s credit file, record and standing against them in order to obtain a job. With few exceptions, one’s credit file is not indicative of how they will perform in a job. Nor in most cases, does it directly relate to how they will handle money matters at a job. If a good credit person lost their job, resulting in a loss of income and subsequently a loss of their credit standing by no direct means of their own, why should that be held against them, and impede them from getting another job, and adding stability to their lives. This perpetuates a flaw in our system that forces people to remain at lower economic levels.
What we are allowing to happen is to ensure that millions of people will not be able to right the ship, or improve their respective lives because of a mismanaged concept and ill-placed ideology. Not all people wrecked their credit by intention, so why should that affect their ability to obtain a job and improve their lives (fiscally speaking).
Three - Legalizing immigrants – I realize this brings up a number of questions and issues, and poses a number of challenges, but, consider the millions of hard-working Latinos that would happily pay taxes and become major consumers if allowed to work legally. Millions do so anyway, through various methods, yet we as a country, from a revenue, economic and tax basis, see no benefit or reward, and they do not get to share the wonderful right to pay taxes… Legalizing immigrants would increase the consumer base by millions of individuals and hundreds of millions of taxable, spendable dollars. It would, in more than a philosophical sense, create an opportunity to take advantage of the ‘American’ dream - its economic benefit, increased expenditure relative to durable goods, housing and, medical expenses to name a few while increasing deposits and transactional banking. Although it has been shown that Latinos for the most part do not believe in banks, and have little faith in the banking system, but, as legalized Americans and consumers, many of their eventual big ticket item purchases will require and necessitate that they become part of the banking system.
Benefits:
•Immediately add to the consumer base
• Increase taxable dollars (revenue)
• Increase large purchases; homes, cars, big-ticket items and durable goods sales
•Most would not draw Social Security, very few ever retire or intend to retire here, thus eliminating the draw but increasing social security deposits
• Contribute hundreds of millions to GDP and durable goods spending
Negatives:
• Increased infrastructural costs such as; a medical expense and general coverage
• Political backlash (although, should be secondary to the good it may do)
In short, creating new credit worthy customers that can now consume in today’s market under guidelines and programs more specifically designed to make sure they consume properly – according to their ‘actual’ where-with-all, not an inflated or leveraged one.
Allowing people to correct their credit eliminates the sense of entitlement, and the ‘free-ride’ mentality that permeates today’s economy with stimulus packages and bailout programs. It gives those that have struggled to maintain reason to feel better about helping those that have not been able to do so. It demonstrates a true sense of ownership and responsibility. It rewards those that have; learned from their mistakes, chosen to walk a different path and have become diligent in their fiscal management. It provides reason, chance and opportunity for everyone to be credit worthy and financially upstanding. Most of all, it unifies us in what we as a nation can collectively agree upon when doling out financial help.
Two - Make it against the law to hold one’s credit file, record and standing against them in order to obtain a job. With few exceptions, one’s credit file is not indicative of how they will perform in a job. Nor in most cases, does it directly relate to how they will handle money matters at a job. If a good credit person lost their job, resulting in a loss of income and subsequently a loss of their credit standing by no direct means of their own, why should that be held against them, and impede them from getting another job, and adding stability to their lives. This perpetuates a flaw in our system that forces people to remain at lower economic levels.
What we are allowing to happen is to ensure that millions of people will not be able to right the ship, or improve their respective lives because of a mismanaged concept and ill-placed ideology. Not all people wrecked their credit by intention, so why should that affect their ability to obtain a job and improve their lives (fiscally speaking).
Three - Legalizing immigrants – I realize this brings up a number of questions and issues, and poses a number of challenges, but, consider the millions of hard-working Latinos that would happily pay taxes and become major consumers if allowed to work legally. Millions do so anyway, through various methods, yet we as a country, from a revenue, economic and tax basis, see no benefit or reward, and they do not get to share the wonderful right to pay taxes… Legalizing immigrants would increase the consumer base by millions of individuals and hundreds of millions of taxable, spendable dollars. It would, in more than a philosophical sense, create an opportunity to take advantage of the ‘American’ dream - its economic benefit, increased expenditure relative to durable goods, housing and, medical expenses to name a few while increasing deposits and transactional banking. Although it has been shown that Latinos for the most part do not believe in banks, and have little faith in the banking system, but, as legalized Americans and consumers, many of their eventual big ticket item purchases will require and necessitate that they become part of the banking system.
Benefits:
•Immediately add to the consumer base
• Increase taxable dollars (revenue)
• Increase large purchases; homes, cars, big-ticket items and durable goods sales
•Most would not draw Social Security, very few ever retire or intend to retire here, thus eliminating the draw but increasing social security deposits
• Contribute hundreds of millions to GDP and durable goods spending
Negatives:
• Increased infrastructural costs such as; a medical expense and general coverage
• Political backlash (although, should be secondary to the good it may do)
Mortgage Plan (Fixing the housing debacle) Restoring the "American Dream"
Foreclosures DO NOT BENEFIT ANYONE!!! They are in some instances and under some circumstances, unavoidable. However, there is a better methodology and solution to the processes and policies banks and lending institutions currently follow. Foreclosed homes offer little if anything to the neighborhood, the economy, and even less to the lender. They are homes that are often abandoned, unoccupied, and in a state of disrepair. Historically, foreclosed homes are harder to sell than occupied homes, and have greater market price discrepancies than their occupied counterparts. They, invariably, lower the value of all its surrounding homes, and the neighborhood itself. They are a complete drain on the economy and offer no redemptive value. Yet, the banking and lending system, runs towards this process as if the results were even remotely with merit.
Add to that, in this current state of the economy, the consumers propensity to walk away from over-valued and under-water homes – the new blithe on society no one thought would happen, let alone, even considered occurring. But yet, here we are... Instead of putting consumers out of their homes there is another option, which helps homeowners, the economy and most important, the lender.
Foreclosures DO NOT BENEFIT ANYONE!!! They are in some instances and under some circumstances, unavoidable. However, there is a better methodology and solution to the processes and policies banks and lending institutions currently follow. Foreclosed homes offer little if anything to the neighborhood, the economy, and even less to the lender. They are homes that are often abandoned, unoccupied, and in a state of disrepair. Historically, foreclosed homes are harder to sell than occupied homes, and have greater market price discrepancies than their occupied counterparts. They, invariably, lower the value of all its surrounding homes, and the neighborhood itself. They are a complete drain on the economy and offer no redemptive value. Yet, the banking and lending system, runs towards this process as if the results were even remotely with merit.
Add to that, in this current state of the economy, the consumers propensity to walk away from over-valued and under-water homes – the new blithe on society no one thought would happen, let alone, even considered occurring. But yet, here we are... Instead of putting consumers out of their homes there is another option, which helps homeowners, the economy and most important, the lender.
The Option (Substitution of Collateral): Rather than try and modify a mortgage, a practice that has proven to be less than successful and has less than a 10% success rate, why not consider a practice more commonly associated with automobiles and automobile lenders than mortgage holders; a practice called ‘substitution of collateral’. It is a variation, but, the premise is somewhat the same, and the benefits are numerous.
Under this program, banks would take homeowners with higher than affordable homes and mortgage payments - a typical foreclosure candidate, and place them in homes already on their books or potentially hitting their books as pre-foreclosures, foreclosures and/or defaulted loans (properties), that would offer the borrower and homeowner a lower payment and greater affordability. In other words, substitute the collateral by switching homeowners out of unaffordable homes, into affordable homes -changing the collateral and loan, without losing the customer, or having to foreclose on the house. The result could be more than a 30 – 40 % reduction in banking inventory and the aggregate number of foreclosures.
Ex: Homeowner 1 - $1,000,000 home going into foreclosure
Homeowner 2 - $650,000 home going into foreclosure
Homeowner 3 - $350,000 home going into foreclosure
To demonstrate, let's use a real-life scenario. Assume the homeowners have lost their respective sources of income, has had to change careers or jobs and, take substantial pay-cuts. Instead of foreclosing on three homes and forcing each homeowner into a rental situation (more-than-likely), which is what is happening now, the bank uses the ‘substitution of collateral’ method. This places HO#1 into HO#2’s house; the reduction in HO#1’s income has been substantial, but his new job still allows for him to afford and very nice home and quite a bit more than the average, i.e., HO#2’s home. Then take HO#2 and place him into HO#3’s house - same basic circumstance as HO#1, just a different financial level.
Under this program, the bank/lender would re-write two possibly three mortgages, end up with only one bad asset on the books, instead of three (3). Both the lender and the homeowner can avoid lengthy foreclosure proceedings, substantial collection and attorney fees, significant loss of principal and capital. The lender helps maintain a consumer base by not destroying the credit of at least two consumers in the marketplace, which is one of the fundamental problems we have today. We are destroying the consumer base, which in turn, is destroying the ability of people to consume and stimulate the economy. Under this scenario, you have maintained two potential and future consumers and, have reduced the possibility of the bank’s foreclosed asset and non-performing loan base going up. Most of all, we have significantly reduced the aggregate dollar amount the government would have to pay to purchase troubled assets and ‘rescue’ homeowners who are facing foreclosures from banks and other lenders.
Assuming no workout or other viable option exists for the current mortgage, this would allow people who are currently facing or are already in foreclosure to select from the bank's other non-performing mortgage assets. They choose a home that they can afford and would prefer to be in, given their current financial situation. Each homeowner selects a home of lesser value to; avoid foreclosure, damage to their credit and, embarrassment. Preserving their homeownership and their ability to recover would be preferable and enough of an incentive to move a substantial amount of non-performing loans (assets) off a banks’ books while maintaining a viable consumer and customer base.
This program would:
• Improve a bank's cash flow and cash basis
• Improve deposits by maintaining a customer and their banking relationship
• Minimize legal expenses due to foreclosure or BK proceedings
• Require a significantly lesser cash infusion from the government to help stabilize or even save a bank
• Significantly reduce the glut of inventory (troubled assets) currently held on the bank's books or headed towards the bank's books.
Benefits:
• Reduce Inventory (macro) – overall market
• Reduce the likelihood that borrowers walk away from under-water houses
• Reduce losses, commissionable expenses from sales and disposal of foreclosed properties
• Continue a revenue stream from a homeowner
• Minimize real estate holdings and inventory on the books
• Helps to maintain property values in neighborhoods – avoids distress sales that de-values surrounding property
• Greatly reduces the number of foreclosed properties in one’s portfolio as well as on the market.
• Maintain property values within a given demographic
• Prevent additional foreclosures as a result of people walking away from negative equity situations born by foreclosures in their respective neighborhoods
• Improves the flow of money and its circulation
• Can help improve a consumer credit situation – allowing that consumer to remain a part of the buying and purchasing market for goods and services
• Maintain a consumer and customer base
• Improve consumer confidence
• Greatly reduce the cost of collections, judgments and lawsuits (foreclosures)
• Minimize in large part bankruptcies – many consumers file bankruptcy to save their homes – largely due to not being able to sell their own home in time or under the right circumstances that will allow them to purchase a new home given both their current financial and credit situation.
Credit Plan (Increasing the consumer & spending base)
Allow individuals and businesses to fix or repair their credit. The result is an immediate increase in the number of consumers that can consume a shot in the arm of consumer confidence, the bolstering of consumer spending, and a prevailing sense and feeling of hope. By allowing people to clean up and repair their credit, you would find that people would work more diligently than ever to get the monies associated with doing this. They would borrow money from family members that otherwise they would not be inclined to do. Family members would in turn, be more inclined to help if they knew it served a greater purpose, and allowed for a greater possibility of their family member paying them back. You would find that people would do much more in the way of repaying a debt, than they are inclined to do right now. At present, there exists little incentive to do so. I realize that some would argue that it would not serve the banks or financial institutions well, but I would argue this. How well does writing off billions of dollars of debt serve the bank, these financial institutions or the stock holders now?
• Reduce losses, commissionable expenses from sales and disposal of foreclosed properties
• Continue a revenue stream from a homeowner
• Minimize real estate holdings and inventory on the books
• Helps to maintain property values in neighborhoods – avoids distress sales that de-values surrounding property
• Greatly reduces the number of foreclosed properties in one’s portfolio as well as on the market.
• Maintain property values within a given demographic
• Prevent additional foreclosures as a result of people walking away from negative equity situations born by foreclosures in their respective neighborhoods
• Improves the flow of money and its circulation
• Can help improve a consumer credit situation – allowing that consumer to remain a part of the buying and purchasing market for goods and services
• Maintain a consumer and customer base
• Improve consumer confidence
• Greatly reduce the cost of collections, judgments and lawsuits (foreclosures)
• Minimize in large part bankruptcies – many consumers file bankruptcy to save their homes – largely due to not being able to sell their own home in time or under the right circumstances that will allow them to purchase a new home given both their current financial and credit situation.
Credit Plan (Increasing the consumer & spending base)
Allow individuals and businesses to fix or repair their credit. The result is an immediate increase in the number of consumers that can consume a shot in the arm of consumer confidence, the bolstering of consumer spending, and a prevailing sense and feeling of hope. By allowing people to clean up and repair their credit, you would find that people would work more diligently than ever to get the monies associated with doing this. They would borrow money from family members that otherwise they would not be inclined to do. Family members would in turn, be more inclined to help if they knew it served a greater purpose, and allowed for a greater possibility of their family member paying them back. You would find that people would do much more in the way of repaying a debt, than they are inclined to do right now. At present, there exists little incentive to do so. I realize that some would argue that it would not serve the banks or financial institutions well, but I would argue this. How well does writing off billions of dollars of debt serve the bank, these financial institutions or the stock holders now?
Benefits:
• Considerably reduce unemployment
• Considerably reduce unemployment
•Greatly reduce the need to file bankruptcy (BK) and the number of BKs
• Free up the court system from having to deal with a record number of filings (reduce the bottleneck that BKs have created)
• Greatly reduce the governmental expense associated with adjudicating this record number of BKs
• Minimize bank need to increase loan-loss provisioning
• Minimize the expenses associated with chasing down debtors and debt
• Large phone bills (most collection departments are out-of-state)
• Employee time spent for future and more productive work
• Bolster, increase and, improve consumer confidence
• Encourage consumers to spend
• Stimulate the economy
• Reduce the losses taken on real estate and other short sales
• Give incentive for people to pay past debts, further reducing a bank overall losses
• Minimize and reduce the need for government bailouts and aid. (Consumers would spend money they have been holding on to just to weather the storm or salvage what would be left.)
• Eliminate and wipe out credit repair scam companies that account for hundreds of millions of dollars a year of consumer monies. Some of which try to, fraudulently, get rid of data and debt they may have actually created. The same millions that could go to the financial institutions that made the loans in the first place.
• Eliminate debt collection agencies, a multi-million dollar a year business. Reducing the overall losses an institution took if this were all left in-house, because of the consumers ‘new’ incentive to pay the debt back and off.
Without the ability to fix or repair credit –
• Unemployment will continue to rise or remain constant
• Greatly reduce the governmental expense associated with adjudicating this record number of BKs
• Minimize bank need to increase loan-loss provisioning
• Minimize the expenses associated with chasing down debtors and debt
• Large phone bills (most collection departments are out-of-state)
• Employee time spent for future and more productive work
• Bolster, increase and, improve consumer confidence
• Encourage consumers to spend
• Stimulate the economy
• Reduce the losses taken on real estate and other short sales
• Give incentive for people to pay past debts, further reducing a bank overall losses
• Minimize and reduce the need for government bailouts and aid. (Consumers would spend money they have been holding on to just to weather the storm or salvage what would be left.)
• Eliminate and wipe out credit repair scam companies that account for hundreds of millions of dollars a year of consumer monies. Some of which try to, fraudulently, get rid of data and debt they may have actually created. The same millions that could go to the financial institutions that made the loans in the first place.
• Eliminate debt collection agencies, a multi-million dollar a year business. Reducing the overall losses an institution took if this were all left in-house, because of the consumers ‘new’ incentive to pay the debt back and off.
Without the ability to fix or repair credit –
• Unemployment will continue to rise or remain constant
• Banks become inundated with non-performing assets they cannot sell (no additional consumers to purchase homes/properties/goods)
• Foreclosures will continue to rise, and property values will continue to fall
• Retail sales will continue to fall and falter
• Automotive sales will continue to drop
• Consumer confidence will continue to drop
General Correction outline:
For charged off accounts, allow the consumer to pay the ‘principal’ balance in full, and the item is completely removed from their credit file. If there are late payments, then the borrower/consumer has two options:
1) He or she can choose to pay a flat fee as determined by banking regulators or the government, for each late payment they have on file. Once paid, late payments are removed. 2) The borrower/consumer can pay 3 consecutive months on time and for each 3-month period a late payment is removed from their file starting with the worst & oldest ones first, i.e.., 90-day late-pays, then 60, then 30 respectively. 3) Some combination of both, with the understanding that gauging the consumer incrementally, will not serve the other premise or purpose of this program.
There are numerous benefits to both the consumer and the bank using either of these methods, especially the later. From a banking perspective, lost revenue from non-timely payments coupled with the ‘cost of capital’ can be negated and ultimately turned into a more profitable revenue stream by allowing the borrower/consumer to pay a fee to remove blemishes. It might be the first banking fee people are willing to pay. Note: A detailed breakdown is available. A summary of such has been listed for the purpose of explanation.
Government Bank Formation (the nationalizing of a bank)
If the government is to buy stock and take a position in banks, why not just in some sense, become a bank altogether. The government could purchase a bank and establish a federally funded national bank whose mandate is to make loans to small businesses, entrepreneurs, individuals and the like in order to create jobs and help stimulate the economy.
The government can hire the appropriate people and personnel and, make it their job to make loans to businesses, business owners and, individuals that have been viable contributors and consumers to our economy. If the government is going to guarantee loans anyway, why not handle the whole process and insure that the money is applied to the purposes intended.
By moving all federally funded and guaranteed loans and lending programs into a nationally chartered bank, for troubled assets and SBA lending, for example, the government can become a direct lender instead of an indirect lender. Thereby performing the function they ask the banks to perform that has yet to be performed – lending monies to customers and businesses to help stimulate and stabilize the economy. It can eliminate the pass-thru position traditional banks hold now, minimize origination and guarantee fees, and move with a more direct and expedited manner.
This newly formed national bank --so-to-speak-- would handle only these types of programs and transactions and would leave the standard day-to-day banking to the traditional banks.
• Foreclosures will continue to rise, and property values will continue to fall
• Retail sales will continue to fall and falter
• Automotive sales will continue to drop
• Consumer confidence will continue to drop
General Correction outline:
For charged off accounts, allow the consumer to pay the ‘principal’ balance in full, and the item is completely removed from their credit file. If there are late payments, then the borrower/consumer has two options:
1) He or she can choose to pay a flat fee as determined by banking regulators or the government, for each late payment they have on file. Once paid, late payments are removed. 2) The borrower/consumer can pay 3 consecutive months on time and for each 3-month period a late payment is removed from their file starting with the worst & oldest ones first, i.e.., 90-day late-pays, then 60, then 30 respectively. 3) Some combination of both, with the understanding that gauging the consumer incrementally, will not serve the other premise or purpose of this program.
There are numerous benefits to both the consumer and the bank using either of these methods, especially the later. From a banking perspective, lost revenue from non-timely payments coupled with the ‘cost of capital’ can be negated and ultimately turned into a more profitable revenue stream by allowing the borrower/consumer to pay a fee to remove blemishes. It might be the first banking fee people are willing to pay. Note: A detailed breakdown is available. A summary of such has been listed for the purpose of explanation.
Government Bank Formation (the nationalizing of a bank)
If the government is to buy stock and take a position in banks, why not just in some sense, become a bank altogether. The government could purchase a bank and establish a federally funded national bank whose mandate is to make loans to small businesses, entrepreneurs, individuals and the like in order to create jobs and help stimulate the economy.
The government can hire the appropriate people and personnel and, make it their job to make loans to businesses, business owners and, individuals that have been viable contributors and consumers to our economy. If the government is going to guarantee loans anyway, why not handle the whole process and insure that the money is applied to the purposes intended.
By moving all federally funded and guaranteed loans and lending programs into a nationally chartered bank, for troubled assets and SBA lending, for example, the government can become a direct lender instead of an indirect lender. Thereby performing the function they ask the banks to perform that has yet to be performed – lending monies to customers and businesses to help stimulate and stabilize the economy. It can eliminate the pass-thru position traditional banks hold now, minimize origination and guarantee fees, and move with a more direct and expedited manner.
This newly formed national bank --so-to-speak-- would handle only these types of programs and transactions and would leave the standard day-to-day banking to the traditional banks.
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