How I am voting on the Propositions.
No on Propositions 30, 31, 34, 36, 37, 38 & 40.
Yes on Propositions 32, 33, 35 & 40.
Update 1/6/12 White House Denies That There is a Mortgage Plan.
The Obama Plan - Headlines from Today's Papers 1/5/12
There is no plan! What you heard on Rush and all over the news yesterday was a rumour. It came from a blog post on Jim Pethokoukis at the American Enterprise Institute. It then got twittered all over the internet and like all rumours grew from there. Jim was blogging about the plan proposed in 2008 that was originally devised by Columbia University economists Glenn Hubbard and Christopher Mayer. He speculated that if Jaret Seiberg of the Washington Research Group, who expects the President to appoint a "housing advocate" to the Federal Housing Finance Agency, the regulator and conservator of Fannie Mae and Freddie Mac, were appointed, he would institute a plan similar to the Columbia University proposal.
Under that plan, all homeowners with a Fannie or Freddie-backed mortgage can refinance with a new mortgage at a fixed rate of 4.2% or less if they have been current on their payments for at least three months. And the clincher is that the plan imposes no other qualification - no appraisal or income verification.
This is also the plan that I modeled my 123 Streamline on. My plan is much more drastic in interest rate reduction. And, unlike the studies done on the 2008 plan, with the changing economic climate, the 123 Streamline would not cost taxpayers one cent. It would in fact increase taxes collected because of the reduction in interest that could be written off by taxpayers. It would also be completely absorbed by the financial markets and preseve an estimated $1 trillion of capital that is now at risk of default and provide up to $140 billion per year in stimulas to the economy by reduced mortgage payments.
Update on 10-11-11
Have been told there is no oxygen left in Washington by congressional staffers - too many things unsettled. Have also been told it has been forwarded to Herman Cain's staff for review.
Update on 9/21/2011
The feds have begun quantitave easing 3 and this time they are only buying treasuries which is driving mortgage interest rates down. 30 year fixed rares are now approaching 3.75% to 4%. The problem is over 60% of mortgage holders can't qualify for a refinance due to being underwater or changes in FICO or income. This program makes more sense now than ever before. Please send this link to your Federal Representative...
Since the original post, much has transpired. In conversations with economists, congressmen, lenders and borrowers here are the new thoughts.
1. Interest rates would be 1% for existing loans of $100,000 and under. 2% for loans over $100,000 and less than $200,000. Rates would be 3% for all borrowers owing more than $200,000 at the time of the streamline. All loans would be 30 year amortized in the streamline refinance.
2. Anybody not in default could qualify for the streamline. - If you were behind you could bring the loan current then apply.
3. Second trust deeds would be refinanced to 1% thirty year amortized regardless of amount owing.
It is time for Congress to take decisive action if the Treasury will not. Unfortunately loan modifications without principal reduction rarely works. Writing off huge amounts of principal is not going to happen. Freddie and Fannie would go under. Here is the solution that would turn around this Depression in less than 1 year.
Take every existing mortgage which is held or insured by Freddie, Fannie, FHA, VA or USDA and whom the borrower is current and has not had more than one 30 day late payment on their mortgage in the past 12 months. Offer them a 1-2-3 no cost Modification.
A 1-2-3 Modification is quite simple. For every existing loan you offer to take the current principal balance and change the interest rate and term as follows; First $100,000 1% interest 30 year amortization, Second $100,000 2% interest 30 year amortization, everything from $200,000 and up 3% interest 30 year amortized. All extra payments applied to highest interest rate portion of note first. Note is only assumable by an immediate family member.
Total cost to the Treasury and the tax payers is almost nothing. Nominal cost of paperwork could be charged to borrowers as part of the loan. Less than $1,000 per loan. Assuming that at least one half of all eligible Fannie and Freddie borrowers accepted the modification, $2.5 trillion in debt being modified, the annual cash savings to borrowers compared to their current loans would be approximately $100 billion dollars per year. Add in the FHA, VA, and USDA loans and you gain another approximately $40 billion dollars per year.
Can you imagine how ordinary bill paying hard working citizens might spend $140 billion dollars of their own money each year? Can you imagine how many people who are upside down in their homes would decide to stay with affordable long term payments? This would stop strategic default. This would give an incentive to all borrowers to stay current.
In addition to helping to stop strategic default, see the example below, it would stabilize the existing mortgage and housing markets. Freddie and Fannie would save over $300 billion in defaults. Investors in Freddie and Fannie would see yields drop about 40% from current levels, but, they would get all of their principal back.
Here is a typical modification. Billy and Betty homeowner bought their home in 2005 for $240,000. They put 10% down and financed $216,000 at 6% interest for 30 years. Their principal and interest payments on the loan are currently $1,296.00 per month, plus taxes and insurance. They have made extra payments and today still owe $200,000. They can't refinance at lower interest rates because their home is only worth $150,000 in todays market. They are considering walking away in strategic default. With the 1-2-3 Modification their new payment is $692.00 per month plus taxes and insurance. These are fixed rates for the next 30 years. Now Billy and Betty have $604 more net spendable dollars per month. They decide to keep their home.
Once the housing market is stabilized and homeowners have money in their pockets they may feel better about spending a few of those extra dollars on themselves. Growing consumer confidence could lead to more jobs. Builders would not have to compete with properties being sold below replacement value and may begin to build again. Then we would have carpet sales, appliance sales, furniture sales and more jobs!