Robert Rush: How to help homeowners
Published: Monday, January 26, 2009 at 6:01 a.m.
Last Modified: Saturday, January 24, 2009 at 11:51 p.m.
The centerpiece for the government’s economic recovery efforts should include a plan to immediately make available government-insured, home mortgage monies at a four percent fixed rate for a new term of 30 years.
This plan would apply to every American who owns or purchases a property that will be owner-occupied as their permanent, primary residence. This would not apply to investment properties, second homes or any other commercial properties.
This plan is simple. A bank or financial institution holding the current mortgage would, upon application by the homeowner, convert their present mortgage to a new term of 30 years at a fixed rate of 4 percent interest. A bank would be authorized to charge a reasonable transaction fee for the processing costs of around $500.
The federal government would act as the guarantor in this mortgage so that there is no risk to the lending institution. Since the federal government has already provided $350 billion to financial institutions, rules could be issued requiring these institutions to begin immediately offering 4 percent mortgages to any persons who are current on their mortgage and want to convert it to the new 4 percent rate.
The benefit to the economy would be immediate by adding additional disposable income to the pockets of every homeowner that takes advantage of this refinancing opportunity due to the dramatically reduced monthly payments.
For example, a $200,000 mortgage reduced from 8.5 percent to 4 percent puts an extra $582 per month in the homeowner’s pocket; $6,985 per year or $209,520 over the course of a 30-year loan.
Even reducing a 5.5 percent mortgage to 4 percent puts an additional $180 per month, or $2,168 per year or $65,066 over the course of the loan back into the homeowner’s pocket. The monthly savings would be even greater for homeowners who are refinancing based on a reduced principal.
This economic stimulus plan rewards people who have been responsible in their finances and in their home-buying. No new government money would be needed because the money is already loaned to a mortgage holder. The terms are just being changed.
The financial institutions would earn about a point and a half, possibly a little more, on the yield difference between the 4 percent rate and a 10-year treasury note. Within the first month, a million homeowners who are current on their mortgage, would seek refinancing. The banks would immediately earn $500 million or more in fees.
State and local government would receive millions in recording fees and documentary stamp taxes. And this stimulus package requires no deficit spending by the government.
Unlike the first $350 billion given out already, we would know exactly where the money went to.
As Jimmy Stewart in “It’s a Wonderful Life,” said, “In your house, in your house, and in your house.”
Robert A. Rush is a Gainesville attorney.
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