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…
- 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.
- It will be easier for homeowners to pay their mortgages and less likely that they will become delinquent and fall into foreclosure.
- Puts money in people’s pockets… ultimately stimulating the economy.
- 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.
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 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.