[LuvFreeRepublic]

Ok, this is food for thought. Thanks. Now what happens to those who already took a loss on their homes by selling it? Now if a bank is willing to do a like kind exchange, what is stopping the bank from adjusting the principal on the existing home loan for those who can afford to keep paying the mortgage? But again, you still have those who have already sold their home and suffered a loss. Seems to me any way you try and fix the mess it results in picking winners and losers.

[usconservative]

Creative solution, I'd give it an A+ for effort. Unfortunately, it won't work and here's why: Currently the big banks are doing ANYTHING to not realize a loss via short sales or other mechanisms. The minute a bank does a short sale (sells for less than the full debt) they have to take the loss on the books and write it down.

In the scenario presented above, one of the lending banks would have to realize a loss to complete the transaction. Assuming the same bank holds BOTH properties, they'd still have to realize a loss on one of them.

The reason we're seeing all these banks sit on these properties is because they can't AFFORD to take the loss on short sales. It depletes their capital reserves and puts them AT RISK.

Unfortunately, I don't think there is a good solution to this problem, I really don't.

[NaturalBornConservative]

I don’t know. It seems that the loss was recognized when the sale took place, so if they already sold, they lost faith and are out of luck. It’s like selling stocks at a loss; it’s not really a loss until you sell. Perhaps there would be a way to grandfather some of them in with an the option to buy, based on their previous credit rating, the reason they walked away, and whether or not they still owe a balance.

I don’t know what advantage the banks would have by writing down the principal on existing loans. That wouldn’t solve the current inventory problem and wouldn’t help stabilize home prices. There would still be a bunch of REO’s being unloaded below value. Right now, any new buyers coming in have an advantage over existing homeowners, as they can buy houses with up to 50% equity leaving everyone else upside down. The idea is to get these undervalued homes off the market by offering them to faithful customers first.

[org.whodat]

A person cannot make his mortgage payments and provide up keep for the property. A gift from the bank would require thousands in gift taxes, where does he get that money since his ass is already in the tank.