My Solution to the Housing Crisis – 4% Mortgages

After spending quite a bit of time being disgusted with the outflow of money to banks to cover short / bad mortgages, I was thinking why not take a different approach to this. Have the government offer 4% mortgages. They could borrow the money using Treasury bills at 3% and in turn offer a 4% interest rate to everyone. Think about how this could stimulate the economy…

An outstanding mortgage of $150,000 at 6.5% has a payment of $948. If you refinance that same $150,000 at 4% you get a payment of $716. That is a $232 savings per month. Which would give people a little more spending power.

The best part of this is all the banks accepting bailout money wouldn’t need it anymore. All their mortgages would be paid off by government backed mortgages, so they can do whatever they want with it, since they obviously can’t manage their money now.

The mortgage interest dedecution would be lower since mortages at 4% are earning less interest than higher rates, so this would actaully increase tax revenue at the IRS.

Ok, yes I oversimplified this, but if you could put rules and requirements around who could qualify for a 4% mortgage doesn’t this start to make sense? Sure the big banks would never let this fly since they would lose a large chunk of their mortgage, but who cares, they are the reason we are in this mess, so I say tough! Maybe one year bank execs would actually not receive a bonus!

On a related topic, I was reading that a high percentage of mortgages that were in foreclosure were due to the buyer not having at least 20% down. So my question is, what happened to PMI (Private Mortgage Insurance)? Last time I checked PMI was required if you were going to have less than 20% down. Wasn’t the whole point of PMI to insure the buyer against not being able to pay the mortgage? I’d love to know where all that PMI money went, since I don’t think it actually made it into an insurance policy. I am sure that is another scandal waiting to show its ugly head.

Ok, so I am down ranting, but I just ask again, aren’t their simplier ways to solve these issues rather than giving billions to corporations just to find out later they spent it on spa getaways? I’m still waiting for my bailout money. Oh wait, I am not getting any!