1. With this never ending housing/mortgage fiasco going on we need to take a look at some ways to correct the situation. With the U.S Government deciding to pass this stupid $700 Billion Bailout Plan which was supposed to correct the instability in the stock market (we all knew it was not going to work as the stock market has dropped below 10,000 points for the first time in 4 years since after passing it) with the U.S Government buying up all of these bad loans. Doesn’t the U.S Government print up this money in the first place? How did they let it get to this in the first place?
2. The mortgage lending system kind of works like this. The Federal Reserve has the power to set interest rates and to determine when they should open up the spickets to flood more money into the economy (thus lowering the value of the U.S Dollar). This money is lent to large banks like JP Morgan Chase, Citibank, Wells Fargo, etc. at the going prime rate. The banks are on the hook for that money they borrowed and now turn around and lend it to you in the form of car loans, home equity loans, and 30 year fixed rate mortgages with their premium added on top. The premium usually comes in the form of a higher interest rate.
3. I am not for any kind of regulation of any type. Maybe back in the day…which was on a tuesday…in like the early 1900s the flow of information around the country was not that good. Regulation was needed to keep things in check and to inform the American citizens. Nowadays, any person in the world can go to a computer and look up information of their own for free on the internet machine. Everybody has heard about the Google Machine and its so easy to use. Got off topic there. Regulation is funny because I feel like these companies that practiced predatory lending and doing crazy loans like option arms and negative amortization loans have regulated themselves as best as they could. They are no longer in business. Nothing says regulation better than your mortgage company going bankrupt. I mean could it be that easy? I think so.
4. Since the U.S Government feels like its doing all of us a favor (nope, just making it worse) by stepping in and cleaning up this mess why don’t they just take it to the next level. They already are bad mouthing mortgage companies across the land. Some CEO’s of mortgage companies have had to go in front of the Congress to testify about their companies. Then they get mad about falling property values and the millions of jobs that have been lost that are all mortgage related. All of the builders, construction laborers, mortgage brokers, home re-modelers, decorators, accountants, etc. All of those jobs have been lost because of this mortgage fiasco. Foreclosed homes are sitting around vacant in every city around the country. Nobody is exempt from this regardless of your income level.
5. The finance market will never be the same, but it never had to change in the first place. Only over the past 6 years has this phenomenon of easy money and loose lending standards ever taken place. Before that it was mandatory for anybody buying a home to have a 20% down payment. The days of 100% financing are gone but there are still some programs that will do 97% loan to value. The only place you are going to find those is through the FHA. I was talking to a friend of mine the other day that works at a mortgage company still and they told me that over 60% of their business is FHA. I wonder why? Could it be because the FHA is the only entity doing loans over 90% still? Probably. The finance sector was always a strong area to invest in. You could usually count on gains in the 5%-8% every year. Mainly because the banks were always making that kind of return. This meant to people that were looking for a solid return on stocks or their 401k knew that they were getting a safe return every year and with a 401k calculator they could figure out how fast they could make a million dollars over their life time.
6. Let’s just get the middle man out. If the U.S Government were to start writing their own mortgages the process of getting a loan would be so much easier. No more haggling with mortgage brokers over interest rates and closing costs. No more shopping for the best rate on a home loan. No more feeling like you got ripped off. No more mortgage brokers making quick profits and then shutting down their business and moving onto the next quick money maker. The mortgage application process would be that much easier.
7. Most people do not know that mortgage rates are a commodity. They are traded on the secondary market just like orange juice. On normal conventional mortgages you will be offered the same interest rate as any other bank that day. These markets trade mortgage notes all over the world trying to make a profit off of their investment. Wouldn’t it be cool if the U.S Government could just step in and set their own interest rates for their beloved citizens?
8. The U.S Government can set their own interest rates. What they should do is start printing up their own money (I wish I could do that) and start offering everybody a 30 year fixed rate loan at 5%. Let the U.S Government write the loan and hold onto the note. This way the money they printed up in the first place is being watched over by them and they can collect the interest on it, not a bank. I know what you are thinking. The banks are paying back the loans over a long time period so isn’t the U.S Government still getting theirs? Maybe. What the banks do is borrow the money, sell you a mortgage, and sell the loan. As an example, on a $100k loan, the bank will borrow the money from the Fed or even a larger private bank at let’s say 4%. They start getting charged the interest as soon as they take the money. They write the loan and sell it within the first month. They charge a 2%-2.5% premium. Which means that $100k loan is now being tried to be sold for $102,500 making them a quick $2500 profit. The original $100k is paid back before any large amount of interest can be charged by the Fed and the second bank walks away with no ties since they do not hold the note any more. It would be better if the U.S Government would just hold onto those notes and make the 5% forever. That 5% note will end up making the Fed over $120k just in interest over 30 years. No banks involved. No selling of notes. Just the U.S Government charging a low amount of interest to its citizens and getting a decent return.
9. The return that the U.S Government would make could be used to pay down its national debts. What an idea. Pay down its debts while putting some coin back into its pockets while helping its citizens out. It would not have to worry about shady mortgage companies. No more time spent on Capital Hill grilling mortgage company CEO’s. No more finger pointing. No more worries. Make the underwriting guidelines the same as they were back in the 1990s and before.
10. The one thing that always sticks out the most is that the U.S Government already owns your home. Let’s say that you do not escrow your property taxes and home owners insurance but still pay your monthly mortgage payment on time. You have no mortgage lates on your credit report but are late paying your property taxes. It gets to the point that you just cannot afford your property taxes anymore. Did you know that the U.S Government can come in and take your home anyways? Since you are behind on your property taxes your house is theirs. Ever seen those tax lien commercials where people buy up homes with past tax liens of $3k where the home is worth $100k? Its real, that stuff happens. Every single mortgage company in the land could not lend anymore. Maybe they could service the loans the U.S Government writes now. Anyways, the U.S Government can make some money by charging lower interest rates and never have to worry about a mortgage mess happening again.