DREAM HM NEWS




Buying and Selling a Home

The 4% Mortgage Solution: The Gamblers of Wall Street Will Not Help Homeowners!

Michael Blassis, Publisher, Dream Homes Magazines
12/31/2008

From political candidates and current government officials to the Bank of America, everybody wants to bail out the people who are already in default on their mortgages, thereby creating huge losses for the rest of us.

Our 4% mortgage solution is not only more equitable to ALL homeowners, it will also stop the slide of home values and, in fact, will reverse the slide if we make the 4% rate available to new buyers, as well. Our plan will be saving not only homeowners but the government and the banks at the same time.

We're also assuming that, in the future, mortgage seekers - of both new mortgages or refinanced mortgages - will have skin in the game so that homeowners will have no incentive to simply walk away from their homes at the expense of their neighbors and taxpayers and then buy the devalued home across the street. The current bailout plans fail to do this. They will not work.

Here are our solutions:

All Existing Mortgages

  • Provide 4% Interest-Only loans to ALL homeowners with an existing mortgage from an accredited institution on their primary residences for a five-year term regardless of the homeowner's credit rating. After the first five-year term is up, the maximum interest rate increase is limited to 1% for one more five-year term. After that, the homeowner will refinance based on the market.
  • If a home is currently valued for less than the homeowner paid for it, the 4% solution will stop the current slide in home prices and the home should be worth its original purchase price or more within the five years.
  • New Buyers

  • 10% down for first-time buyers.
  • 20% down for move-up buyers.
  • 25% or more down NO docs. The buyer has real skin in the game. The lender should not have to worry about the buyer walking away from the loan because he or she has more than a fourth of the equity. No-docs loans are very important for small businesses and freelancers who have difficulty providing documentation of their incomes since their incomes change year to year.
  • 4% loans will enable buyers to afford higher-priced properties, further stimulating and supporting home prices.
  • Eliminate Computer Zestimates
  • Eliminate Zillow Zestimates and all other automated home valuation services. These are clearly wreaking havoc in the housing market. We have heard stories of people showing up at open houses with the home's Zestimate in hand. Worse, we know of people who've been turned down for refinancing because the mortgage broker did a quick check on Zillow. We know of many homes that have sold for $1 million or more above their Zestimates. Foreclosures and forced sales are moves of desperation, but they don't make the market. These automated estimates could artificially force prices down. They are the equivalent of valuing gold, diamonds, and watches based on whatever the pawn shop pays for them.
  • All estimates should only be provided by a trained licensed appraiser who actually has evaluated the property in person and does not take into account "fire sales."
  • Government Tax Benefit

  • The government will benefit with the 4% loan because they will not have to refund taxpayers as much as they had to in the form of the Mortgage Interest Deduction when interest rates were 6 to 12%. How much the government will save will depend on the mortgage being replaced.
  • The government already guarantees most of the loans in the country through Freddie Mac and Fannie Mae - this plan will substantially reduce the government's risk for loss.
  • Minimum Overhead and Bank Profits
  • The government should guarantee interbank loans to a maximum percentage of the banks' capital.
  • If the Japanese can afford to give their people 1.6% mortgages, American lenders should be able to provide 4% loans to save everybody in this country.
  • With the less than 2% the banks are currently paying on savings accounts and the 1.5% they are paying for interbank loans and since banks are already at risk for the full amount of the mortgage, there should be no new appraisals or other qualifying steps whatsoever. This will make the new loans profitable with very little overhead. All it will take is a half-hour automatic clerical adjustment to the new rate.
  • This is why we feel the Bank of America/Countrywide $8 billion bailout - where up to 390,000 borrowers who took out risky loans may have both their principal and their interest rates reduced - is a bad idea. It requires too much overhead; it will be an expensive procedure. All of those borrowers will have to be requalified, for example. And it rewards people for making bad choices but does nothing for the rest of us who have been responsible mortgage payers. In addition, it will encourage people who are barely squeaking by on their current mortgage payment to deliberately default so they can benefit by the bailout. And the bailout will result in lowering home prices more.
  • Conforming Rates:
  • Conforming rates and Jumbo interest rates should be the same. Because they differ relatively widely today, this is another ploy by banks to charge buyers more than necessary. If the buyer has qualified, the increased rate is unjustified and penalizes higher-priced areas of the country.
  • Conforming rates must have limits, but those limits should be tied to the median in each Zip code. For example, in Little Rock, Arkansas, the median is $129,000 while in La Jolla, California, it is $2,050,000. Those medians should be the conforming rates. Otherwise, we are being too generous with people who buy homes in the middle of the country while penalizing people who live in expensive cities.
  • No More Toxic Loans

  • Stop all negative-amortization loans and low first-year teaser rates. These are STILL being offered.
  • Conclusion
    To quote Warren Buffett in a recent interview with Charlie Rose about the economy, "I don't think it's getting worse. I think what people want to do is make it get worse."
    If we take the measures proposed so far, we are only lodging ourselves into a self-fulfilling prophecy!
    Consumer spending accounts for 70% of the U.S. economy. Approximately 70% of all consumers are homeowners, so helping homeowners become confident consumers has to be our #1 priority.


    Photography by Bob Thompson
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    Print Date: 2/21/2020
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