(Send this to your candidate running for office, you could be a part of the solution)
With millions of homes on the market, many of them vacant and foreclosed, there is still many more millions of Americans who are making payments, in spite of a tough economy, lower income and often poor jobs. In light of this, Freddie Mac reported that rates on home mortgages are below 4% and have been at this recorded low for over six consecutive weeks. The 30-year fixed-rate mortgage averaged 3.89%.
The 15 year mortgage was at 3.16%, and the 5 year Treasury, adjustable rate mortgage (ARM), averaged 2.82% this week. Why so low? Huge supplies of houses, and a high unemployment rate.
More and more economists have been responding to homeowner complaints that it is the one area needing a multi-billion dollar bail out. It seems simplistic, in these political times, but truly, a line that will always get applause for during a political speech goes something like: “When are you going to get YOUR bail out?”
Well, the simplistic message is gathering a little traction as more and more economic leaders begin to listen to the politicians, perhaps a bail out in the mortgage sector, for homeowners struggling to make the same high payments, with sometimes just a fraction of the income they had when they purchased a home.
The various plans to “force” banks and mortgage companies to refinance on better terms have essentially failed. We have one reader who had been making over $300,000 per year, only to see his income drop to $50,000 per year. Yet his mortgage rate is still several thousand dollars a month,and he said that he called a national lender and they told him he didn't qualify for a lower rate or lower payment loan. When he asked what he did qualify for, he was told: “You qualify for a foreclosure, because you are no longer credit worthy.” Does our nation, our national ethic really want to put people like this out on the street? It is an understood, that as the economy recovers his income will increase, possibly to the level it was before.
Or consider the family with 2 young children, the mother needs to stay at home to be with her young kids, they owe $90,000, and have payments of $780 per month. The husband has been laid off, but only has $1,400 per month income from all sources, including unemployment. What are they to do? Go to the streets? Live in a park? This family doesn't even have enough money to move.
1st Case: The "former business executive" has good earnings potential when the economy recovers. If he allows his loan to default, it is worth nearly $150,000 less than his current mortgage amount, and if he gave the house back, it would be another loss for the beleaguered mortgage system. Plus, he gets a "deficiency law suit" that effectively ruins his credit and his ability to refinance a smaller home. His pride has kept him making payments, often at the expense of hospital, doctor and food needs. It would seem that some kind of equitable “bail out” for the mortgage system would be in order, so that his payments could be significantly reduced, on a longer payout, and the lender could get a term life insurance policy on him, to assure payment in the case of his demise. At least in this way, he keeps his pride, the house is not foreclosed, and the additional expense of foreclosure, moving, and legal losses are avoided. Our solution would allow this man's payments to be reduced to not more than25% of his gross income, but adjusted annually during the term of the loan. A long term insurance policy would go on this man's life, and follow the case below to see how it could work.
2nd Case: The unemployed man's payments immediately drop to $195 per month. When he gets a job, and starts making $3,000 per month as he normally can in a good economy, his payments increase to $750 per month. The law would have a provision that the lender would not have to charge the loan off on the books unless he becomes late, or does not pay his payment 3 consecutive times. The payments would be adjusted annually based upon his income, with payments not exceeding 25% of his monthly gross income, but adjusted upward as his income increases, still based on 25% of his monthly gross income.
In the case of the "muddled executive", what if he makes payments of $500 per month for 5 years, $2,000 per month for 5 years, but then $4,000 per month per 5 years. But if his payments get so high, he would then qualify to completely refinance the loan, because with his higher income he would then be able to make it work. On this program, even if a borrower continues to make “discount” payments, the long term insurance policy would cover the loan balance when the man dies. The insurance pays the mortgage off in full, complete including any negative amortizations still outstanding. This looks like a win/win for the borrower and for the lender participating in the program. Everyone accepts lower cash flow early in the program, when the economy is bad, but that is still less costly than another “foreclosure”. This program would work as a wonderful “bail out” for taxpayers, who still want to maintain and make payments on their homes. One provision of this "law" would be that when the person makes 6 consecutive payments on time, his credit rating is immediately restored to a credit rating of 650 if it was below that level prior to this contract. In this way, we can help the millions of Americans who have lost their credit due to this bad economy,lay offs and often events beyond their ability to control.
If you politicians are listening, here is your issue. If you are Democrat, it will get you re-elected, if a Republican, give you a winning issue and put you in office. It has been said that for every foreclosure , there are 10 American families (voters by the way) who are struggling with payments, but still love their homes and don’t want to lose their homes. And come on, with rates now at 3.79%, it is time for someone to do something for all of the millions of Americans who are making payments even though it is often a struggle.