We Should Refinance Every Mortgage at 4% for 30 Years
Posted by Michael A. Kamperman on January 20, 2011
We will not revive the economy and create the millions of jobs necessary to put the millions of 99′ers back to work until we fix the housing market. Housing is the key, and the housing market remains broken. There is still a deep backlog of foreclosures. New home construction remains at levels comparable to 50 years ago despite a big boost in population. Because the Zombie Banks are sitting on numerous unrecognized losses from housing, they remain extremely conservative in lending new money to small businesses and consumers. The best way to end the foreclosure backlog and stabilize home prices is to refinace every mortgage in America without an appraisal, without verification of income, and without a new title policy. This means every mortgage, a change in my perspective, whether it is current or not. I now believe the housing market is so broken that just refinancing current mortgages is insufficient. The mortgage lenders can take mortgages that are delinquent and roll the amount of money into the loan and hot the reset button. Refinancing delinquent mortgages will give those who have fallen behind the ability to catch up and start over. Additionally, those that are underwater can request an appraisal. If the appraisal is more than 10% below the mortgage amount, then that mortgage would be refinanced at 3% with the payment based on a 4% 30 year mortgatge and the difference going to principal enhanced principal reduction. Going forward, those who fail to pay the new mortgages will be foreclosed upon. This will give the whole housing market the breather from foreclosures that it needs to gain stability.
It is important to remember that all of these mortgages already exist and we will not be creating “new” problem loans. The federal government already guarantees about 90% of all mortgages already between its backing of Fannie Mae, Freddie Mac, Ginnie Mae, the VA, the FHA, the FDIC, the SIPC, and the Pension Guarantee Investment Corporation. The taxpayer will be taking on less risk by refinancing 100% of the outstanding mortgages because the entire market will improve versus the alternative of maintaining the status quo. The market will be able to provide the money to refinance these mortgages because everyone who takes advantage of this opportunity will have repaid their existing mortgage. Refinancing all mortgages will improve the cashflow of all mortgage holders allowing them to spend or invest in the rest of the economy. By ending the foreclosure and short sales plaguing the market it will once again make sense to pay full boat and invest in a brand new home spurring construction jobs.
The President is looking for ways to jump start the job market on the cheap. This is because he believes that the risk of entering a depression is over. He is wrong. The risk of entering a depression is over only because we have already entered one. He believes we are not in a depression and that the natural business boom-bust business cycle has entered a recovery phase that will soon right the economic ship and create millions of jobs. Refinancing all mortgages at 4% is a cheap idea, because the federal government can currently borrow money for 10 years at less than 3.5%. And, the Federal Reserve can invest in these mortgages if no one else will because their souce of funding is unlimited and their cost of funds is zero. Every home owner, whether they have a mortgage or not, will benefit from a stabilized home market. Even if you own your home outright you don’t benefit if your neighbor moves out and squatters move in to the vacant unkept property next door. Construction jobs are a very important part of modern-day economies. We cannot expect to lower unemployment significantly if we ignore good paying construction jobs and all of the industries and service businesses associated with new home construction.
