Anyone who has ever been stuck in a mud bog, snow, sand, etc knows how it feels to be bogged down. To get free, the answer is to rarely look in the rear view mirror and try to undo what is already done. Yes at times you do need to back up or ‘rock’ yourself loose, but beating yourself up or even admitting the mistake that got you there doesn’t get you out.

Funny how similar this is to our current financial crisis. We keep on rehashing the old issues, talking about why we are where we are. The Fed talks about buying non-performing assets, or giving money to those who are struggling. How about a forward looking solution? Loan modifications are great for those who are struggling, but how about those who are responsible but struggling as well?

Here is my suggestion once again – instead of buying bad assets, why not put together a program where the Fed insures new mortgages. Right now the cost of funds is ridiculously cheap, but the cost to insure those loans is expensive. Add to that the lack of appetite for these funds and you have interest rates higher than they easily could be.

If the Fed offered to back the loans to a certain extent, we could get new loans made, get good people out of the bad loans they are in, but more importantly, it doesn’t alleviate those who made bad loans from the liabilities they have created.

The loans we need right now are Jumbo loans for good customers. Some borrowers can’t document their incomes but they have been making their payments for years on time. If we can lower the payments they are already making, doesn’t it make sense that they will keep making these payments? This describes many if not most of the small business owners in America.

By insuring good loans, and looking forward, we can save the American Taxpayer a significant amount of money, and help good borrowers get into better loans instead of throwing good money after bad.

This may not be an all-inclusive plan, but it could be implemented quickly (quicker than many loan modifications) and would be a GREAT start to getting back on track.

How do we know which loan programs to roll? Simple – go to the lenders who are out there, ask for their servicing records and see which loans perform. Simple details such as FICO bands, LTV’s, Payment shock, Payment reduction, etc. will allow us to know which loans are a good risk and which are not.

Back to the analogy – we must look forward and not backwards to get out of this mess!

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My stance for the last while has been that we cannot see a bottom until banks start lending again. I have seen a couple of examples of banks starting to lend money outside agency guidelines.

There are a couple of banks that have aggressively been targeting jumbo loans. They have recently cut back their LTV’s, but I have a feeling that has more to do with their capacity than their delinquencies.

I ran across a new place today that is a division of a credit union who is doing financing for manufactured homes. This is an area that has plenty of need for good credit customers, and very limited sources of funding. They seem to be getting good quality business in and the return on their investment should be substantial.

Just a couple of quick notes of things I have seen so far, and a good sign for the finance world!

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