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We’re in a fix. If we fail to move quickly in the right direction, our economic woes could morph into a depression lasting decades. But there’s hope. Recently, a rumor circulated that the federal government was considering offering 4% financing for homes. Low mortgage rates could help, but if executed poorly, they could make our depression deeper and longer lasting.
The scheme could work if: Cheap financing—3% annually might be sufficient—should be available only to purchase resale homes sold by owner occupants. Reduced-rate financing should go only to buyers who have at least 10% of the sales price to pay in cash if they will be occupants, or 25% cash if they are investors. Finally, the buyers must have good credit and stable, verifiable income. We follow basic, prudent lending guidelines.
The low rates should not be available to purchase new homes or foreclosure properties. We accomplish three goals: First, the low rates should jump start demand for homes—buyers have been holding off until prices stop free-falling.
Second, by withholding the subsidized financing from buyers of foreclosed homes, we pressure mortgage holders to make deals with homeowners. Instead of foreclosing, their interests will be better served by negotiating lower rates, adjusting loan balances, and agreeing to allow short sales (in which the lender accepts less than a full loan payoff so homeowners can sell a home that is worth less than the loan against it).
The scheme could work if: Cheap financing—3% annually might be sufficient—should be available only to purchase resale homes sold by owner occupants. Reduced-rate financing should go only to buyers who have at least 10% of the sales price to pay in cash if they will be occupants, or 25% cash if they are investors. Finally, the buyers must have good credit and stable, verifiable income. We follow basic, prudent lending guidelines.
The low rates should not be available to purchase new homes or foreclosure properties. We accomplish three goals: First, the low rates should jump start demand for homes—buyers have been holding off until prices stop free-falling.
Second, by withholding the subsidized financing from buyers of foreclosed homes, we pressure mortgage holders to make deals with homeowners. Instead of foreclosing, their interests will be better served by negotiating lower rates, adjusting loan balances, and agreeing to allow short sales (in which the lender accepts less than a full loan payoff so homeowners can sell a home that is worth less than the loan against it).
Third, homebuilders will have no incentive to build. Foreclosure activity has not yet peaked. The second wave is coming next year. We need time, probably four years, for home-buying demand to draw down today’s supply plus the additional foreclosures likely to come on the market. During that time, we do not want new homes built.
We add to the demand stimulus by raising available interest rates a half point each year. A year from now, buyers will rush to get a home under contract before the 3% rate disappears. Nevertheless, after that wave of purchasing activity, a 3.5% rate would continue to provide incentive to new buyers for another year.
We still need two more stimulants: construction and energy jobs. When Barack Obama is inaugurated, he must immediately push through Congress his plan for a package of infrastructure and clean-energy development.
Building roads, bridges, schools and a new, superconducting electric grid will employ many of the workers who lost their jobs as new home construction tanked. The new grid will enable our country to replace oil and gasoline use with greater use of electricity. We keep our dollars in the United States. We stop helping the Saudi royal family and the Bin Ladens send billions of dollars to fund terrorist-training madrasas.
More about our economy and its connections to fighting terrorism next week.
We add to the demand stimulus by raising available interest rates a half point each year. A year from now, buyers will rush to get a home under contract before the 3% rate disappears. Nevertheless, after that wave of purchasing activity, a 3.5% rate would continue to provide incentive to new buyers for another year.
We still need two more stimulants: construction and energy jobs. When Barack Obama is inaugurated, he must immediately push through Congress his plan for a package of infrastructure and clean-energy development.
Building roads, bridges, schools and a new, superconducting electric grid will employ many of the workers who lost their jobs as new home construction tanked. The new grid will enable our country to replace oil and gasoline use with greater use of electricity. We keep our dollars in the United States. We stop helping the Saudi royal family and the Bin Ladens send billions of dollars to fund terrorist-training madrasas.
More about our economy and its connections to fighting terrorism next week.
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