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It Started In Housing -- So Send Economic Stimulus To Housing! Main Boise Home Loans
Obviously, I'm not advising President Bush, President-Elect Obama, Secretary Paulsen, or anyone else that is involved in the various levels of the Economic Stimulus packages and where the money is being spent. But, if I were...I would send economic stimulus DIRECTLY to the housing sector. How would I do it?

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Dear BuildingCredibility.com Reader:

It all started in the housing sector. When mortgages to purchase new homes became "too easy" to qualify for, more people bought homes than ever before. Stated Income, No Income Verification, No Employment Verification, No Documentation...these were some of the pricing options available in 2006.

When you combine these lax, underwriting standards with Subprime ARM's (adjustable rate mortgages) that have margins as high as 8% and first adjustment caps as high as 3%, you have a recipe for disaster. Still not sure why we have a housing crisis? I'll spell out one of the reasons for you...

2006 EXAMPLE -- A self-employed, married couple with a qualifying credit score of 697 that have been in business for 6 months are able to qualify for a 100% NINJA (No Income, No Job or Asset verification) interest-only purchase mortgage at a rate of 7.25%. Two years later, the economy is effectively in recession, they are out of business, and are not able to make the payments on their mortgage that has adjusted up to 8.75% and will stay there for 6 months before adjusting again. Since they had no money into the transaction because all closing costs were "wrapped" into the loan, and since they are now upside down because the value of their home has dropped 15%, they walk away and let the lender foreclose the property.

Subprime, jumbo, conforming...it doesn't matter. This couple should never have been allowed to purchase a home with only 6 months self-employment history. Fortunately, programs like the NINJA example I outlined above are largely gone. Now, you MUST document income, assets, employment, etc.

That being said, how would I stimulate the housing sector for well qualified home buyers?

1) Enact a large 1-time tax credit to home buyers to stimulate demand

I'm not talking about the $7,500 tax credit/repayable 0% loan that Congress has already set out. I mean a LARGE, 1-time tax credit in the neighborhood of $10,000 to $25,000 (depending on the price of the home and area that you live in) that DOES NOT need to be repaid.

2) Offer a 200 to 250 basis point mortgage rate reduction

Again, I'm talking about well qualified home buyers who can provide full documentation on income, assets, employment...the works. Give these buyers a 30 year fixed, fully amortizing mortgage in the interest rate range of 4% to 4.5%.

This idea isn't new. In 1975, the Ford Administration enacted this same policy to fight the recession the country was in. In 1975, the tax credit and mortgage rate reduction window lasted about 9 months. We can do the same thing today...have this credit and mortgage rate reduction last until the end of 2009 or at least to the end of the current national fiscal year. These would only be available to those purchasing primary residences or second homes, and would not be available for investment property aquisition.

In combination, these incentives would absolutely bring well-qualified home buyers off the fence and absolutely stimulate the housing sector. I find it incredibly ironic that most of the talk about economic stimulus right now DOES NOT include housing...even though that is where it started.

In America, people don't like to be sold, but they absolutely love to buy. So, even given the gloomy economy, rising unemployment, and uncertainty that consumers are facing...I still feel strongly that this recipe would work to stimulate our economy, and more importantly, housing.

If you have additional questions about the Financial Rescue Plan or the Housing Bill and how it relates to your mortgage, or are interested in talking more about this post, feel free to call or email me at (208) 880-0316 and eric@ericsloans.com. You can also visit my website at http://www.ericsloans.com.
 

Warm Regards,


Eric Leigh, Mortgage Consultant
2965 E. Tarpon Drive, Ste. 150
Meridian, ID 83642
(208) 880-0316
http://www.ericsloans.com
eric@ericsloans.com

 

 
Posted by Eric Leigh at 11/6/2008 4:30:00 PM
Comments (8)
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
Not to mention the jobs it creates!
In addition to Public Works and housing stimulus, there should be a mechanism to leverage the government expenditures for a return on investment which creates revenue to take the burden off the people in the form of taxes. (I.E. Self-supporting stimulus) That was part of capitalistic thinking at the start of the $700 Billion financial crisis and bale out.
Katy Slater
Ecopreneur
Posted by on 11/6/2008 7:58 AM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
It is a buyers market out there - for any who are considering "upgrading" to a bigger home this is as good of a time as any - it is likely that qualified borrowers could keep a similar monthly payment for a larger home right now. What is holding them back? The fact that selling a current home is hard too. I know that I have considered this recently but was too worried that I couldn't sell my "starter home" for the price I would need. This is a good idea and if the housing market were moving less sluggishly I would jump at the idea of a very low interest rate on a better home. I think there are some really valid points here!
Posted by on 11/6/2008 8:55 AM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
Don't use my tax money to pay your commision!

My plan, have prices come back to affordable levels...

if you want gov involved, then have them cap re fees at 1% and flat rate $500 to brokers or lenders max profit....savings to the buyer

keep out of my wallet...i havecash and will use when prices are in reality
Posted by on 11/6/2008 12:21 PM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
If only the world were a simple place and things were black and white. Sorry Opie, Sheriff Taylor's world has passed. Was it better. Don't know, but it was definietly simpler. If you have all the answers- run for office. You have 4 years- you better get started now.
Trey
Posted by on 11/6/2008 1:00 PM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
The Any Griffith Show were better days.
Posted by on 11/6/2008 3:35 PM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
Emdeplam,

My thoughts on your post...

If the Federal Government has already taken our tax dollars, $700 Billion on the first go round, wouldn't it be better spent in housing stimulus rather than corporate bailout?

Trust me...I don't like it any more (corporate bail out) than you do. But, if they're going to throw that many tax dollars at this mess, at least do it in a way that will directly help us as homeowners. Tell me how what they're doing is helping homeowners Emdeplam?

You seem to think that I am self-serving ONLY MYSELF by suggesting this IDEA, and that's unfortunate.

Eric
Posted by Eric Leigh on 11/6/2008 3:41 PM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
And just to be sure I am absolutely clear on my position...

I DO NOT LIKE THE IDEA OF THE BAILOUT MONEY GOING TO CORPORATE AMERICA.

With that said...if there HAS TO BE A BAILOUT, and at this point that is true, then any portion of that money that can come back to DIRECTLY help homeowners and taxpayers is a good thing.

Eric
Posted by Eric Leigh on 11/7/2008 8:15 AM
Re:It Started In Housing -- So Send Economic Stimulus To Housing!
no bailouts with my(tax money). We had a CREDIT bubble...weneed to force insolvent homeowners, business etc under and then recapitalize those left standing!

This is exactly what Japan pulled...proping up failed banks and business and they got 20 years of stangnation...

I AM FARMORE Negative than I was before. We are headed for big problems and BAILOUTS are putting the dollar and the US Gov balance sheet at risk. Anyone looking for a bailout/handout is risking a bond market collapse...

I have been diversifying out of US Dollars with the recent rally,mainly into Yen and CHfrancs...this is not to make money, but because I believe the games we are playing with these bailouts MAY ultimately be much worse than a severe resession. We are closer to Iceland than we may realize.

So I am sorry about juming on the idea, but I personally find all the bailout requests UNAMRECIAN, UNCAPITALIST and a leach%^$ mentality where we dont take responsibility for our own actions. Housing is in a bubble, and 10% did not correct much... we are done inflating...the credit bubble is over...

our choice is between a severe resession or much worse...no easy answers...call me crazy...but you can look at my previous posts ...look at my S&P or DOW forecasts or unemployment forecasts....and I have become much glommier because of gov intervention...we are becoming Japan.
Posted by on 11/7/2008 5:22 PM
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