A solution to the subprime crisis: the "raplapla"

As you might know I have been working last year in the mortgage industry, which was affected by one of the biggest crisis the real estate market has ever experienced in the US.

I found a very interesting article in French magazine l'Expansion, issue number 728 of March 2008. It explains how France has been able to calm down a similar mortgage crisis that is affecting the American economy right now. 20 years before the American crisis, France have been able to avoid a subprime crisis, which helped thousands of French family to avoid foreclosures, whereas they were victims of "subprime-like" loans.

Indeed, le PAP, pret a l'accession a la propriete (loan to access ownership), was a specific program targeting low income households. This product was close to the subprime loans: they were paying interest only payments for two years, then progressively they were paying back the loan, with payments that were increasing constantly. This program also allowed 100% financing (something very rare in France). This program has created the very same effect than the one we can observe in the US, with a lot of houses on the edge of foreclosure.

The government then found a solution in 1991: The government decided to buy houses to transform them into HLM (social buildings owned by the government). Therefore the owners of the loans where not the owner of the house, but kept it. This plan was called the raplapla ( rachat des prets a l'accession a la propriete, or buyout of loans to access ownership).

What do you think about this idea? I know that this solution is pretty "social" and unfortunately I don't say it happening in the US...

Blogged with the Flock Browser