What's wrong with this plan?

[rzemanfl]

Impose an 18 month to two year moratorium on principal payments on existing mortgages unless the mortgage is being paid in full. The banks would still have the interest income and it would put a ton of temporary discretionary cash into the hands of consumers. They could chose to save it or spend it, either of which would be a shot in the arm for the economy. People who were thinking of putting their house on the market might say “let’s wait.” After 18 months or two years, the people who saved the money could apply it to their mortgages and be back to where they would have been, except that they’d pocket the interest they earned. The people who spent the money would have to pay on their mortgages for longer than they had planned. The people holding the mortgage-backed securities would bitch and my response to them would be force majeure-go fuck yourselves or we will impose a moratorium on the interest payments too.

I am no economist, so let me know what is wrong with this idea.

[Rage for Order]

1. It's a breach of contract

Every mortgage is an individual contract, and not all mortgages were pooled and sold as mortgage backed securities. In order for your plan to work, every lender and investor in mortgage backed securities in the country would have to agree to it, which isn't very likely. Financial institutions have cash flow models that they use to project how much cash they will need, how much they can expect to receive each month vie loan payments, fees, interest income, principal repayments, etc. A large variance between expected vs actual cash flow would severely impair the ability of banks to make new loans, which could negate any positive effects we would see from a principal payment moratorium.

[rzemanfl]

2. I am not talking about the banks and customers doing it, but the

government requiring it (hence force majuere in my post). Your point about bank's cash flow projections is well taken.