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« Get Your Brokers License You Slacker | Main | Feet Dragging by Banks Leads to Murder »

June 24, 2009

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Kenneth G. Smith II

If someone can pay rent, that rent can be considered part of a mortgage payment. The government is providing $8,000 for first time buyers, so why can’t the government pay part of the payment and have the borrower repay the government in the future?? Here is an example of how it could work.

• Mr. and Mrs. ZZZZZ have a mortgage payment of $1,170 ($200,000 loan with 30 year payout at 5.75% interest).
• The ZZZZ’s lose their job and can only pay $470, so the government pays the difference of $700
• So the ZZZZ’s remain homeowners and work through their problem. It takes the ZZZZ’s 10 months to get back on their feet, the government paid out $7,000 and now the ZZZZ’s owe the government.
• But the government says okay, you can start paying us back in seven years and the payment will be over 10 years at an interest rate of 3%.

What the government has done is to provide assistance to the property owner (just like the bailout plans for the Financial Industry and Automotive Industry) and requires them to pay back the obligation starting in seven years. This is not a freebie, but short term assistance. Franklin Roosevelt called it Lend Lease.


This program is not perfect, but it can assist a lot of people who want to own homes. Most importantly, it is channeled directly to the property owner, not a large corporation that has other motives besides keeping the property owner solvent.
A significant benefit of this program is that payments to financial institutions will resume and cash flow will get back to normal levels, thus credit availability should improve.

There needs to be conditions such as confirming gross income via income tax statements; confirming employment and confirming current payroll. The only group of individuals who would be excluded are those who own more than one property (there should be no break to the investor who treated real estate as a business) and cases where mortgage fraud exists in the form of straw buyers and invalid sales (properties that sold more than three times within five years and the value change was greater than 150%).

This total assistance would be capped at $50,000 and could run for 24 to 36 months
In a given year up to $25,000 could be provided.
The government would be releasing the funds over 12 months, thus the federal outlay would be limited.
The total cost of $10 million loans receiving assistance would be $250 billion per year or $500 billion in total.
This is much cheaper than the TARP bailout and part of this can be funded with the current $70 billion in TARP repayments.
The greatest difficulty in implementing this program is processing and accounting. Loan Servicing companies would need to add staff (if one servicer can process 50 applications a week, 4,000 servicers would need to be hired, plus additional support staff) Wow, as many as 10,000 new jobs would be created. Add to this job creation the fact that several million homes do not go into foreclosure and more jobs are not lost due to desperate situations.

Yes it is possible and yes it can work.

The reason it can work is because real estate goes through cycles. If people are forced to sell at liquidation prices, everyone loses. Give property owners a chance to get back on their feet, get back to work and the whole economy starts to turn around.

As stated earlier, this is not perfect and many will complain about the injustice. But think about the injustice of the corporate bailouts, the injustice that first time home buyers get a break, the injustice that shareholders come before the individuals who created value in the companies by buying products. One can go on and on, or we can try.

We only fail if we do not try.

Tony Arko

Kenneth, You make a very compelling argument for creating an entirely new program to bail out homeowners that maxed out their credit limit by buying too much house at too high a price and left themselves no room for error.

All the while many others were smart enough not to over extend themselves and decided to rent instead and wait for the market to correct. These people need no bailouts, no additional taxpayer relief plans. They just need the banks to foreclose or the homeowners over their heads to move out and rent somewhere else.

There are hundreds of families ready to buy as soon as the market gets back to normal. But normal won't happen until the governments stops trying to fix the problems that they created.

I, for one, do not want to subsidize those who were irresponsible in the past. I believe my hard earned tax dollars would be better spent today fixing other problems or paying down national debt.

John

Tony
I agree that we need to pay down debt and have less government involvement. But, I do not agree that all of the people who are in distressed situations today over extended themselves. There are houndreds of thousands of hard working people who lost their job or had pay reduced because of this recession. It is my belief that we need to provide assistance, not a baliout.

What is proposed is assistance, not forgiveness. How many times in our lives have we stopped to help people? The mess that exists does not fully lie at the fault of the taxpayer.

And yes, taxpayer. We are talking about assisting taxpayers. Pork Barrel Projects and other waste should be eliminated, and subsides exist in many tax breaks, included $8,000 for new home buyers.

Taxes should be equitable, but they are not and buy offering assistance we are recognized that many people need help. Look at how much Federal Aid poured into New Orleans after Kitrina, the list can go on and on.

Thanks for your honesty and open discussion.

Young

The market in Loudoun County has a ways to go down - watch for prices to fall for the next 2 yrs - credit or no credit

San Antonio Real Estate

We're faced with the same market in San Antonio. As long as these dead beats keep getting rewarded for not paying on their mortgages or giving freebies away to people who usually don't pay anyway we only worsen the problem. How about rewarding the good paying citizens and helping out the people who pay the bills...

Poplar Bluff Real Estate

Your housing voucher is based upon your income as well as the cost of the rental units in your market area. You will NOT qualify for a three BR unit, regardless of the age difference, since both children are of the same gender.

Minnesota Short Sale Agents

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