Posted by
Ken Moyes on Saturday, March 29, 2008 5:15:50 PM
Two candidates for President are falling over themselves
with solutions for the current mortgage, lending crisis. Their plans call for everything from delaying
rate increases to throwing money at the debtors. This problem is really about supply and
demand. Let’s look at these plans in a
broad sense.
If we stay or delay the rate increases of the adjusting
rates or give borrowers money to make payments, we must first solve the problem
of who gets the juice – who benefits? Do
we single out people who are 90 days past due and help them? If we do, then those folks 60 days past due
will now have an incentive to make matters worse and become 90 days past due to
qualify for help. If we help someone who
paid no attention to their ability to pay, but jumped in any way, then how do
we compensate someone who did not enter into such a mortgage, because they
exercised good judgment – in essence, their tax dollars would be helping the
person who got the house they wanted, but chose to pass on? Today’s candidates in pandering for votes
want to spend your money on a problem that they clearly do not understand.
Yes, many subprime borrowers are out there in trouble – they
are called subprime for a reason – did we or they expect anything else? The true victims of this crisis are all the
homeowners who are now trapped in their homes due to the equity position. The value of their residential property has
precipitously dropped. Whether they are
investors for rental properties or occupants of their dream home, we are all
being hurt by this loss in home values. So what is the solution? Senator’s Obama and Clinton, Senator McCain, President Bush, and
Congress are you listening? The solution
is to raise the property values and not just throw money at selected people in
an unbalanced approached. Here is
how. Raising property values stabilizes
lenders, allows good payers now stuck in a property value vortex to be free to
resell. Raising property values helps
subprime borrowers, by giving them a chance to get out – sell and move on. Raising property values is the only equitable
solution. How do we do this?
If the Federal Reserve took all the money being proposed by
our pandering candidates, sweetened the pot and created a pool of mortgage
money to be administered by FHA, Fannie Mae, Ginnie Mae, etc. for special
mortgage lending. This money can be made
available for a one year period and it supports only 10 year adjustable arms initially
priced at the 3.5% APR. Most homeowners
stay in their homes for less than the ten year period the ARM affords, thus over
time these special loans would dry up and be repaid on their own. Qualifying borrowers could not be subprime –
to qualify a prime credit score must exist for each borrower. Any of the borrowers must be first time
buyers. Only owner occupants after
purchase would be eligible – these homes may not be rented to anyone while
under the special mortgage. These
mortgages could only be used to purchase a resale home from an investor/landlord
or from an occupant – no refinances. Cap
the maximum available mortgage at 120% of the median home price of each county
where the home is located. Do not permit
second mortgages or equity lines at purchase. Allow PMI as a security for weak equity positions. Permit financing to 95% with PMI is all
borrowers have a first tier credit score.
This program would stimulate the residential housing market,
create lots of demand, and start to bring home values up. At the minimum it would stabilize the
values. Lenders would no longer have to
suffer declining equity positions, credit troubled and financially troubled
borrowers would now start to have a way out as home prices rise.
The affect on this rise in home values would secondarily
lift new home sales and actually stimulate that industry. This property value stimulation is the most
equitable and most effective to achieve what is needed, a stabilization of the
residential housing market, and it can be instituted within 60 days or less.