Our government has invested a great deal of money in Freddie Mac and Fannie May and I believe that this investment should give us the ability to shape policy. We, the government, are essentially guarantying all the loans under these two entities. By putting pressure on the Federal Reserve to lower the interest rates on FHA mortgages. I suggest that the interest rate on a home purchased with a Thirty Year Fixed rate FHA mortgage that is owner occupied to be lowered to 4%. This will translate into a payment on a $200,000 mortgage to be $955 monthly, an affordable amount for most. I also suggest that second home buyers and investors be offered the same rate but have to put down a minimum of 10%. This will bring buyers back into the market, stabilize prices and absorb the inventory. There should be a sunset clause on this type agenda, possibly eighteen to twenty four months.
In addition you might consider allowing people that are upside down in their homes to refinance 125% of the present market value at the same rate. This should only be made available to those that the lenders agree to cooperate by rewriting the mortgage to the lower amount. I believe that this would be very attractive and be doable for many of the people in this situation. The lenders involved would need to have some future obligation for the 25% in excess of market value in case of a future foreclosure on the same property. This would also accomplish two things. It would allow many people to stay in their homes and the mortgage holders would lose less money than they would by going through the foreclosure process.
In addition to the above I suggest that these loans be assumable after the lender qualifies the prospective buyer for credit worthiness and only after the mortgage has been active for a minimum of one year. I believe that this and the low interest rate will eliminate most foreclosures.
