Obama forcing refinancing would NOT be breaking private contracts. [View All]

Rep. Jim Moran claimed that Obama had the power to force a refinance of every mortgage in America if he wanted.

Some here are claiming that if he were to do it, Obama would have to have the power to break private contracts, which no President can (or should be able to) do.

But that power isn't needed. No contracts need be broken and here's how.

With the help of the Treasury and the Federal Reserve, the government can set up what's known as a "bad bank," a new lender of last resort. This entity would be empowered to buy up mortgages.

This government-owned bad bank can then negotiate with current noteholders to buy up troubled mortgages. Most of these could probably be obtained for pennies on the dollar, some would need to be bought at near full price. The original contracts are thus fulfilled, not broken.

The bad bank can then renegotiate each of the mortgages to avoid foreclosures. New interest rates and payment schedules can be drawn up. If need be, some could even be crammed down to lower principal where houses are under water financially. For those that want to walk away from their loan, the bad bank could take title in exchange for writing off the debt, then sell the house to an investor.

Once all of the assets of the bad bank are renegotiated, the bad bank could then either administer the loans itself, or sell the new loans off to investors or financial institutions to take over administration. This would get the mortgages off the hands of the government.

This is how the banks should have been bailed out in 2008-2009. And it's what should happen now. The government already has the power and ability to do this, all that is needed is the will.