An alternative to the massive mortgage bailout!

Our lawmakers and administration people are trying to use $700 Billion of our money to bailout firms due to the mortgage meltdown and the collapse of the mortgage back securities market.  They are simply working from the wrong end of the pipe.  They need to address the problem at its source.  The failed performamce of these securities brought about by a weakened economy increased foreclosure rates thus precipitating a steep decline in property values.  This decline has undermined these securitized mortgage instruments.  There is an alternative.  Remove the Mark To Market rule and stimulate home resales, reduce supply, and increase demand, thus raising real estate values and thus the value of the securitized assets.  This will add stability to the financial markets, and ultimately will cost of a fraction of what our leaders are willing to spend on a plan that has little chance of working.

What should we do and how do we do it?  Make the program only available for a one year period. How do we do this?  Take that $700 Billion and allow the Federal Reserve to make a second loan window for the specific purpose of lending money under an FHA loan program.  The kicker is that the banks pay 2% and loan it at 3% under a seven (7) year adjustable rate mortgage and the banks “match fund” for that seven year period.  This means that the Federal reserve only loans the funds to the banks for seven years and accepts early paydowns from the banks as these mortgages liquidate or turnover.  Make the program only available for a one year period and to buyers of resale homes previously occupied by a private owner.

An example of this loan’s affordability is a monthly payment of $1,270 or so per month for a $300,000 mortgage.  The seven (7) years coincides with the median home ownership period before transfer.  This would represent:

• three hundred fifty thousand (350,000) mortgages
• if the average mortgage is two hundred thousand dollars ($200,000)
• based on the national average home sale price of two hundred twelve thousand dollars ($212,000) 

Any banks wanting to participate must agree to pay all closing costs for the borrower(s), if the borrower(s) are buying a foreclosure, regardless of the bank originating the loan.

Stimulate the resale home buying industry and watch the home values rise, providing relief.  The real upside is that in seven years most all these problems will be gone.  After initiating this program, then start talking about what went wrong, why it went wrong, and what we as a nation need to do to fix it.

Work a deal with realtors through the National Association of Realtors to reduce commissions on the sale of these homes in all markets.  Yes, this plan will not help those in foreclosure who cannot afford their home.  However, the vast majority of Americans who are paying and are in trouble will be helped.  The economy will be helped by this stimulus package – when people buy a home, they go shopping for furniture and fixtures.

Of course, the percents, term, and amounts can be tweaked to make this work.

If you like this plan, please copy it and send it to your Representative in Congress and your Senators.  You can find these people at Contacting The Congress.