Thursday, March 05, 2009

$75 Billion Mortgage Rescue? There Is A Better Plan

The new mortgage plan may help to extend repayment period, reduce rates or even result in some reduction in the outstanding mortgage. We can argue till the cows come home, but its a band aid.

I am disappointed that there is a complementary solution staring them in the face and no one is doing it! If you are throwing $75 billion to save those in trouble, what about those who are not in "need" - you can be fairer and at the same tackle the issue better.

My plan, use $50 billion for the above plan, and use another $50 billion to spur the demand side. The problem with falling property prices is not just foreclosures and negative equity, its also the other side of the equation - the demand.
The other $50 billion should be used to give out $25,000 max for every new buyer who qualify (really qualify) - i.e. verified income, verified affordability according to the textbook on approving loans, with a minimum down payment of 15%.

The $25,000 will be credited to the pay down the mortgage once a year over 3 years, it will reduce the new owner's monthly payments every year for 3 years. New owners will get up to $25,000 or a max of 10% of the price purchased. As these are new mortgages, they should have a low fixed rate of 1.5% plus BLR or a max rate of 4% for the first 5 years.
Not only will you get fresh genuine demand but these new loans are more defensible and of a better quality thus underpinning the buyers' strength. This brings an immediate balance to the equation, fresh demand, fresh buyers. Hey, even if you already own two houses but if you qualify, you can buy.

$50,000,000,000 divided by $25,000 = 2 million new buyers.

The expectation of genuine buyers flowing in will re-energise the markets. Somebody please pass this to Tim Geithner!

p/s photo: Ha Ji Won


see said...

The saving housebuyers in trouble is mere politics lah. You mean something similar to Australia's scheme ie giving to first time housebuyers. Like that I also wanna be housebuyer in Oz, unlike here I get nothing for all the taxes I pay....also have to pay neighbourhood security

solomon said...

I am no genius of financials.

For the good or going to be delinquent loan, so long the rate of refinancing could end up with monthly instalment 30-40% lower, they will free up some monies for the consumer.

For the bad loan, a dollar for dollar matching incentives for limited period shd be considered. Says, for qualified defaulter who can pay $1000 over the monthly $2000. US govt could consider payout of $1000 if they paid up. It is better than giving a lump sum saviour amount.

While all the revamping or queries going arounds the world, I think the native answer to this is the job market. Need to continue to create more jobs in financials, auto and many more.

Jasonred79 said...

"Hey, even if you already own two houses but if you qualify, you can buy."

This is exactly one of the things they are trying to avoid.

They're trying to *save* existing homeowners, not prolong the existing housing bubble deflation.

What is someone who already owns 2 houses supposed to do with another house? Live in 3 at once? Turn 1 house into a birdfarm (we actually do this in Malaysia though, lol)

It is the whole "I don't need a house, but I'll but one for investment" mentality that causes housing bubbles in the first place.

... In some areas in the melaka and Johor now, the current number of houses is 1.4 times the number of households. The number of shoplots has reached 2.5 times the number of open businesses in Melaka town. SHOPHOUSES have a 30% occupancy rate in Melaka town! This is clearly ridiculous, and a day of reckoning is coming.

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