Mortgage Stimulus Plan

The United States is in the midst of an economic crisis much of which is due to the collapse of housing market. The banks have responded with a credit freeze ultimately leading to many Americans losing their jobs. One of the first things Barack Obama plans to do as President of the United States is to approve an economic stimulus package and in order to address the root of this economic crisis, the housing market must be fixed. The US Government should consider a Mortgage Stimulus Plan. Throughout his campaign, Barack Obama states that he listens to the ideas and opinions of others. I thought I might run my idea past him.

I’ve been thinking about how the US Government could stimulate the economy, jump-start housing and assist existing homeowners. Here is my idea…

Create a “Mortgage Stimulus Plan” that gives everyone the opportunity to buy or refinance their primary residence into a 30-year fixed rate mortgage at 3 to 4  percent. This opportunity can be taken advantage of one time within a specified period of time. The US Government should define low, allowable closing costs that may be charged for these loans to borrowers. Anyone choosing to not take advantage of this offer may elect to take a one-time stimulus check instead.

I believe that this Mortgage Stimulus Plan approach would do a few things…

  1. Allow people the opportunity to make a single “smart” decision to position themselves in a better long-term financial situation… even if they’ve made a few bad decisions in the past.
  2. It will be easier for homeowners to pay their mortgages and less likely that they will become delinquent and fall into foreclosure.
  3. Puts money in people’s pockets… ultimately stimulating the economy.
  4. Stabilize the housing market, jump start home buying, reduce housing inventory to more normal levels and help to establish a bottom for home prices (hopefully).

The typical mortgage payment on $200,000 at 6% is $1,199 per month. Refinancing that same mortgage at 3% leaves the homeowner with a $843 per month mortgage payment. That’s a savings of $356 per month ($245 at 4%). Unlike a one-time stimulus check, this is extra money that the homeowner now has every month. That’s extra money that the homeowner would now have in their pocket helping to stimulate the economy.  They can put this money towards items such as new car payments, paying off debt, re-investing for their retirement, etc. This temporary Mortgage Stimulus Plan is actually a long-term stimulus to the economy.

Anyone choosing to simply refinance their existing home would automatically qualify for this Mortgage Stimulus Plan.

The US governement should require that the banks provide these mortgages for all existing homeowner refinances and reasonably qualified homebuyers. Anyone choosing to simply refinance their existing home would automatically qualify for this Mortgage Stimulus Plan. People who have recently lost their jobs, are underwater on their mortgage and/or require a jumbo loan are the people who need and will benefit from this mortgage plan the most. Ultimately this refinance will only place people in a better position financially and avoid the possibility of foreclosure for many homeowners. There will still be many instances where people still cannot afford even these new mortgages and the banks should, as they claim to be now, work with them through the existing modification programs including Hope for Homeowners. (Hopefully they will be improved as well.)

The US Government should define low, allowable closing costs that may be charged for refinancing borrowers. This is similiar to my understanding of how FHA closing costs per HUD loans work. Essentially, no “mark-ups” are allowed. The banks will not make much money on these loans but hasn’t the government already given them enough? Offering reduced closing costs would be a great PR move for the banks in the eyes of the average American and possibly even a way they could compete for these new mortgages.

Since new home buyers would be able to take advantage of this plan as well, new and used housing inventories would be drastically reduced as home buyers sitting on the sidelines will find that this program offers an interest rate that cannot be beat. This will give a needed jolt to home buying and help to establish a bottom to falling home prices.

The rise and fall of housing prices has played a large role in this terrible financial crisis we are experiencing in 2008. If the US Government were to drastically modify standard mortgage interest rates, it may cause housing prices to climb erratically once again. This Mortgage Stimulus Plan aims to allow mortgage rates to remain at current levels while the market continues to normalize home values and work itself out. The one-time only aspect of this Mortgage Stimulus Plan means that this everyone may take advantage of this program one time within a specific time period. 

The US Government has already done a lot to “bailout” the banking industry. I know “Main Street” is wondering when the government will help the average American. I think a plan such as the Mortgage Stimulus Plan outlined above would not only help out the average American financially, but emotionally as well.

12 Comments

spress  on December 29th, 2008

we are the backbone of this country. cut us a break now. The upper 10% of the mega BILLION DOLLAR intelligensia will always have theres.

tretessler@yahoo.com  on December 30th, 2008

I think it is a decent idea but how do you handle the shortfall between appraised value and monies that are currently owed on the home? I believe that to be the biggest problem that we are facing. There are thousands of people out there that are in loans that they can currently afford but when the fixed term of the loan expires and it becomes adjustable they may or may not be able to continue to afford, expecially since most loans turn into an amortized loan and the difference in payment between an interest only payment and an amortized payment can be substantial even if the current adjustable rate is lower than the rate they were paying on their interest only loan. The other problem is for people who want to refinance they cannot because they owe more than the house is worth. I believe it to be the loss in value of the home that will ultimately be the biggest challenge to overcome by families and the government because people will literally have no options unless concessions are made to the appraised value and the loan to value ratios. Solutions? Subsides to the bank is the only one that I can think will be acceptable. The truth is as a homeowner it is far better for me to walk away than to pay all this money into my house just to see it evaporate due to repressed values.

rmabeus  on February 2nd, 2009

I agree with the lowering of mortgages for everyone not just the rich people or the people with great credit. There are alot of people that are on their way to forclosure because the house that was bought 3 years ago for 300K is now worth 200K. How can congress expect people to even want or can afford to pay for a house where the mortgage should now be $500.00 less if interest rates were dropped. That would help all the people in that perdicament

lghbob  on February 12th, 2009

Great idea.
I starved for years with no going out,no vacations, ten year old cars, and no new clothes for years. I paid off and own my home outright.

My neighbor changes cars every year, goes out at least three times a week, and does cruises twice a year.

He re-mortgaged his house to the last penny. Owes $300,000 on a house that’s now worth $225,000, and lives paycheck to paycheck.

I love your plan… Specially the part about my paying for his house, and mortgaging my kids future.

But you’ll do well in government, because that the kind of thinking they understand.

wandakay27  on February 19th, 2009

I think this mortgage stimulus package would benefit a lot of us working lower and middle class Americans. Me for one have a mortgage payment that is over 45% of my gross income.

dwhittington  on February 25th, 2009

Your plan sounds fair. How fair is it when the bank repos your neighbors home because they owe more on it then what it is worth and can’t get it financed. The bank then take the same house and auctions it off for 100K ot 150K less. Why did’t they just make an adjustment in the interest rate to 3% or 4% and let the neighbor keep their home. I guess that is to easy, they like loosing 6 months of no payments and pay for foreclosure cost.

meg75  on April 18th, 2009

yes this would make since but they are not actually doing anything for people that are behind on their mortgage. my bank has no option for someone that is behind on their mortgage they just let you keep getting more and more behind. They act like they have no options and when you memtion something that is mention in the news. They state (Yes we have heard that but it has not been offer to your bank) This has hurt my credit score so bad that i can not even get refinanced at a lower interest rate my rate is 8.5. If anyone has any suggestion please let me know!!!!!

Vicki  on May 9th, 2009

Is the stimulus based on 10% of the asking price of home?

becky  on July 29th, 2009

the Idea of having an ongoing stimulus is the right Idea. My Idea still goes to the first and a good one just buy up the motgages and let the people be free of the debt and let the people be free to make more sound choices in the future , uh like buying things they need …for cash and staying out of debt!!!! Again these people are terrified and would look at such a step with extream gratitude.

Stimulus  on July 25th, 2010

I agree..But I must say The Federal Government has taken recent action to assist homeowners in lowering their mortgage payments. The American Recovery & Reinvestment Act signed into law by President Obama has opened lending guidelines for FHA/VA and Conventional borrowers.

RLmn  on October 8th, 2010

I have been thinking about this for a long time as well. I think this the kind of bottom up stimulus plan would be really effective. This is real money in the hands of the people that would and could actually spend it and put it into the economy right away. This would be a huge and immediate shot in the arm. The other stimulus plans have only thrown the seeds in large clumps. This would sow the seeds evenly throughout the country and where it is needed most and could germinate quickly. It’s a proactive plan that could reverse falling prices and prevent future foreclosures with immediate lower monthly payments. The other hidden benefit to the government would be that because the interest paid per year would be less for everyone and so would be the interest tax deduction, thereby giving the government a huge net tax increase that everyone would be happy to pay. The beauty also is that it would be a one time deal and would naturally go away gradually though time as people bought and sold and moved on.

Mike6dkids@sc.rr.com  on November 17th, 2010

Lost job 1 1/2 years ago and having trouble need help if you can Have worked 25 yrs to have a home I hope to keep it

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