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ShoutOutAmericaNow.blogspot.com is a place for sharing Your Wisdom with like-minded Americans. We Want Your Idea(s) to make our Country a better place for all members. Any Idea, Any Topic, if you believe it will make a difference, then email it to us to share here using the Post YOUR IDEA tab.

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.... Now more than ever we need to all work together to bring about positive change for a brighter future.



Wednesday, October 19, 2011

Two Economic Solutions for America

There is a growing disconnect between our Government and the American People. The American people are increasingly disillusioned or disgusted with our Government, as our Country borders on a double dip recession. Yet politicians continue ineffectually, doing more harm than good, seemingly more interested in personal and political gain than actual solutions. This growing disconnect is threatening the heart and soul of our great Nation, the average American. Left unchecked we may lose the force behind the strength and creativity that built such an amazing Country.

It appears part of the reason there is so much animosity toward elected officials, and the feelings of such apathy and hopelessness in America today, is the sense that no one in a position to do something will listen. Quality, creative ideas pour into the offices of elected officials daily, only to be ignored because they lack massive funding, or voting lobby support. Instead of taking action on these ideas making our Country stronger, the average American is returned an impersonal form letter, touting prior accomplishments and asking for future votes. The time has come for this to change. With the desire to help our Country get back on track, we are presenting two economic proposals for positive change. Our hope is that they will bridge the dangerous and growing gap between the American people and our Government, and that our elected officials will take the necessary steps to make our Country stronger for all people.

There is no doubt we are entangled in an economic housing crisis that is continuing to draw our Country down into an ever-deepening pit. Having been created largely by greedy financial institutions and security traders, recent political fixes such as the Dodd-Frank Consumer Protection Act have only exacerbated the situation. Today the average American finds it extremely difficult to secure any home loan, and thanks to our Government, over 10 Million Americans, with excellent credit and substantial reserves can no longer purchase any home, or even refinance their existing home. We all know there is a huge housing inventory that needs to move, and millions of Americans continue to be unemployed while large corporations and banks store massive reserves. The financial markets continue to position themselves for lucrative profits at the expense of the average American. Unless this situation is changed, we will continue to see growing foreclosures and an ever-widening gap dividing the very rich from our increasingly poor American public.

Proposal #1: We immediately need to get more money to the American public, while reducing their financial burden. Interest rates are the lowest in years but tens of millions of Americans are barred from taking advantage of this resource opportunity because of Government and banking restrictions. To capitalize on this potential resource, and make a decisive positive impact for our economy, our Government should back a Residential Refinance Act.

In a Residential Refinance Act every homeowner with at least three (3) most recent consecutive years of on-time mortgage payments -and- owner occupancy, would be automatically approved for a ‘Rate and Term’ refinance of their current owner-occupied residential home. This Rate and Term refinance could be done as a fast-track existing product, or new Government guaranteed/insured product. Additional lender security for the new loan could be provided at closing through a 1 to 2% mortgage insurance fee based on property loan to value. Credit score, income, and liquid assets are not relevant. The homeowner already owns the home with the existing current mortgage. The Residential Refinance Act just improves the situation. From a current mortgage of $200,000 at 8.0%, a refinance of this nature could be an owner occupant savings of over $500 Per Month. Just think of the immediate economic upturn this would add for our economy.

'Immediate' Benefits:
1) This puts substantial funds into our communities to strengthen the economy.
2) It gives the public more discretionary funds and spending power, thereby creating more jobs.
3) Many homeowners may be saved from foreclosure, thus strengthening our economy,
            • by reducing an owner’s monthly debt burden.
            • by allowing owners to refinance out of problematic adjustable rate loans.
            • by making more cash available to pay other bills.
4) Banks will make money on the new loans, and experience fewer foreclosures with better portfolio security through the addition of new mortgage insurance fees.
5) In essence this concept takes out an insurance policy against a Double Dip Recession and in the long run will put people back to work
6) Best of all… It costs our Government, and the American People, NOTHING.

Proposal #2: We have a housing inventory that needs to move right now, and millions of American workers that need to regain their jobs. To do this our Government should support a true Asset/Credit based Government Backed mortgage loan program.  

Thanks to the Dodd-Frank Consumer Protection Act and other Government restrictions only ‘full doc’ loans are available today. A full doc loan by definition must look at the borrower’s tax return for income verification to qualify for the loan. The problem comes from proper use of our tax code. Self-Employed business owners have over 400 more deductions available than a W2 wage earner because of the nature of their business. Therefore their tax return income, after legal deductions, is often too low to meet ratio guidelines and qualify. You may have excellent credit and funds to outright buy a home but now due to Government regulation if your tax return does not show a specified level of income you cannot get a loan. This situation has removed millions of quality buyers from the housing market destroying hundreds of thousands of jobs in real estate and millions of jobs in finance, construction, manufacturing and other real estate related industries.

Comparing possible Asset/Credit based loans to existing full doc loans it is easy to see why the Asset/Credit based loans would be more secure in the long run than what is currently available. Today there are ‘full doc’ loans with as little as 3% to 5% down payment where the Seller may pay most of the loan closing costs, with a credit scores that are way to low, and requiring reserves of only a few months in savings. In this climate of corporate downsizing and business failures, what are the chances that the wage earning W2 Borrower with the ‘full doc’ loan will be laid off? How long could this ‘full doc’ borrower, with almost no reserves, continue to make mortgage payments if they for any reason were out of work for a protracted basis? How easy do you think it would be for this ‘full doc’ borrower to walk away from a 3% or 5% down payment? Compare this scenario to a proper Self-Employed Asset/Credit based loan with say 25% or more down; with a minimum seasoned credit score above 700, and verified cash seasoned reserves of over 12 to 18 months. You know from the start this Asset/Credit based Buyer has options. They will continue to make payments far beyond when the minimum down, ‘full doc’ Buyer decides to walk.

What we need now is a true Asset/Credit based government backed loan. These loans can be just as secure, if not better, than a ‘full doc’ Conventional or FHA/VA loan. Hard moneylenders have been using this program for years on investment properties with exceptional success. We just need the proper guidelines, and loan oversight. On a government backed Asset/Credit based loan there could be, and should be, mandatory guidelines set with stiff penalties for those underwriting outside the guidelines. There should also be random audits to verify reserve assets, credit scores, and Self-Employment status at time of application performed by someone who has had actual streetwise lending experience. In addition to larger required down payments, there could also be interest rates as much as 1% to 2% higher than current market rates to cover perceived risk factors. Borrowers using these type of funds would easily accept a higher rate if they could just get any type of mortgage loan.

Immediate Benefits:
1) This will put millions of Buyers back into the housing market.
2) It will immediately reduce the existing housing inventory.
3) More new construction jobs would be created.
4) These new mortgage loans will be stronger with larger down payments and higher reserves.
5) The increased interest rates will provide program funding and better security for these loans.
6) Stronger oversight of these loans, and the banking/securities industry, will further reduce the risk of future fraud and problem loans.
7) Best of all… This process will cost our Government, and the American People, NOTHING.

In a recent speech President Obama said, “We need to do something big, something bold”; referring to the current economic crisis America faces today. Presented here are two proposals that work to solve many of our Country’s economic problems without further burdening our Government, or the American people. They clearly are out of the box and designed to “meet the moment”. They free the American people from a financial hostage situation allowing them to use their own creativity and strengths to raise our Country up to new heights of economic security. We could turn the mortgage/financial/housing crisis around in 6 months if we only initiated these two proposals. Now is the time to take real action steps necessary to heal our Country for the benefit of all Americans. To do this we need your help. Send this message out to your elected officials, the media, and anyone else who will listen.


With Sincere Hopes for a Better Future,
Shout Out America Now

1 comment:

  1. Well done Steve!

    Bill Gaffney
    CMPS
    bill@morningstarmortgage.com

    ReplyDelete