A Real Stimuls Plan for America

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Author: kendigger

Started: November 19, 2008, 6:29:10 pm

Target: US Congress

Category: Economy & Business

Supporters:

Goal:

100,000

Goal Progress:

Status

Active

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To the Honorable President Bush, President-Elect Obama, Treasury Secretary Paulson, FDIC Chairwoman Bair, Senators Dodd, Franks, Hutchinson and the Senate Banking Committee

Dear Ladies and Gentlemen,

We the undersigned have developed a proposal to set before Congress which we believe will substantially improve the current crisis in the banking and mortgage industries, and provide for the improvement of life for millions of Americans.

The plan mainly focuses on homeowners who are current on their mortgages, however also provides for relief to the people who are currently distressed.

The benefits of this plan are:
1) Provide additional capital to the majority of Americans without the need for government stimulus checks
2) Restore consumer confidence and stimulate consumption, in turn having a positive impact to numerous commercial markets, including the automobile markets
3) Stimulate business for numerous banks, mortgage professionals, the homebuilding and supply sectors, and legal professionals

In addition, the plan will provide for a dramatic increase in transfer taxes to local governments across the country to increase their revenue and protect vital government services.

Therefore, we encourage you to carefully consider the attached proposal. It has been vetted by numerous professionals with extensive expertise in the mortgage and banking industry, and can be an important step towards the financial recovery of the Nation.

Sincerely,

Kenneth Baumgardt, Christiana DE
Terry A. Guess, Royce City, TX
Brad Walters, Dallas, TX
Ari Kasday, New York, NY
And the signatories to this petition

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PRIDE IN HOME OWNERSHIP BILL

We the people of these United States, in the interest of preserving the life, liberty and pursuit of happiness of these United States, do hereby submit to the Congress of the United States this bill to be presented for consideration by the elected representatives of the nation.

1. Purpose. To re-establish the fair and marketable sale and continued ownership of residential properties within the United States, its territories and protectorates.

2. Economic Incentive Refinancing. The Government Sponsored Enterprises, by proxy, known colloquially as Fannie Mae and Freddie Mac, are hereby directed to offer to the residents of the United States, its territories and protectorates, the right and ability to purchase or finance residential property under the following terms and conditions;

a. Mortgages shall be made available for contractual obligation upon the authorization of this bill under the following terms:

i. Fannie Mae and Freddie Mac shall provide mortgages at a fixed rate of 4% for a 30 year mortgage, and 3.5% fixed rate for a 15 year mortgage to applicants fulfilling the following conditions: (a) the total PITI (principal, interest, tax and insurance) shall not exceed 38% of the applicants fully documented monthly household gross income, (b) for refinancing an existing residence, the total loan amount shall not exceed 80% of the legally and properly appraised value of the house and existing liens as determined by FHA appraisal, (c) for financing the purchase of a new home, the total loan amount shall not exceed 90% of the legally and properly appraised value of the property.

ii. Residences for which mortgages exceed 80% of the appraised value of the residence may be purchased by Fannie Mae and Freddie Mac, at a rate increase of 1% additional interest for each 5% increment that the loan exceeds 80% of the appraised value.
5-80 Loan to Value (LTV) = no additional premium
81-85 LTV = +1%
86-90 LTV = +2%
91-95 LTV = +3%
96-100% = +4%

iii. No cash will be provided to the homeowner as a result of the purchase or refinancing. For the purpose of consolidating household debt, accumulated debt may include second mortgages, automobile loans, documented medical debts and credit card debts.

iv. Residences which are purchased or refinanced for more than 80% of the appraised value shall have Private Mortgage Insurance (PMI) added to the loan. This PMI shall be removed from the terms of the mortgage contract when either said mortgage balance reaches a value of 78% of the original appraised value, or after a period of at least 24 months a new appraisal proves a loan to value less than 80% provided that all payments are made on time for the preceding 12 months.

v. Fannie Mae and Freddie Mac shall not assess additional fees to the terms of the mortgage with the exception of the following: appraisal fees, loan document fees, title fees, pest inspection fees, transfer taxes, and lawyer fees.

vi. Provisions of this bill apply only to owner occupied primary residences.

3. Help for Distress Homeowners. In order to resolve the crises of foreclosed homes and distressed homeowners throughout the United States, Fannie Mae and Freddie Mac shall offer “mortgage relief loans” under the following terms and conditions, viz:

a. Applicants who are more than 60 days late in mortgage payments may apply.
b. The applicant shall receive a new mortgage as described under Part 1 of this bill. The same terms and conditions apply.

c. Applicants must participate in a government approved credit counseling program to ensure that the applicant is able to stabilize his financial condition.

d. The housing expense ratio of the combined first mortgage and relief loan may not exceed 40% of the borrower’s fully documented gross income. In the case that the applicant’s total housing expense ratio exceeds 40% of the borrowers monthly gross income, the principal shall not be altered but the length of the mortgage amortization shall be extended to a term in which the mortgage equals 38% of the applicants fully documented monthly gross income. The term of the mortgage may not exceed a 40 year term.

e. Only one mortgage relief loan shall be made to an individual/household.

f. A loan shall be made to distressed homeowners in the form of a second lien against the property at a fixed rate of 8%. This lien shall be of sufficient amount to pay for all arrears, unpaid payments, and the full mortgage payment, escrow and private mortgage insurance for one year from the date of the contract. This loan shall allow the homeowner to avoid foreclosure and be able to stabilize his financial situation. Said loan shall not be eligible for prepayment options. Said loan shall be require a balloon payment issued for a term of no less than 10 years. No additional non-housing related debt may be included within this loan. No private mortgage insurance (PMI) will be assessed to the loans.

i. The loans shall be financed by 10% treasury bonds which shall be known under this Act as “Hope Bonds.” Investment in Hope Bonds will be offered to the general public and will be tax exempt from Federal Income Taxation.

ii. Funds shall be calculated to cover excess debt, arrears on current mortgage and future mortgage payments only. Assigned Title Company will settle debts upon closing the loan. A coupon book will be created and utilized, drawing funds directly from this account to pay for new PITI payments. Other use of these funds is not permitted and punishable by fine and/or imprisonment. In the event of borrower default, and or loss of property due to extenuating circumstances, leftover funds from this account will be owed to the Federal Government at no more than 2% interest by borrower until settled.

4. Trading Down Program. Commitment to Affordable Housing

a. Given the massive inventories of foreclosed homes, the following program provides relief by moving inventory, preventing decrease in property tax revenues by maintaining homeownership

b. If a current homeowner is unable to qualify other programs, the homebuyer should be offered the last resort: Trading Down.

c. Trading-Down” for distressed homeowners is defined as a Transaction where the current lien holder(s) forgive a portion of the mortgage debt and the homeowner assumes ownership of a less expensive dwelling.

This is accomplished by:

i. Distressed homeowner agrees to purchase a home at a lesser cost which is currently in pre-foreclosure or bank owned.

ii. Banks shall take title of the existing property, and shall waive all claims to existing penalties or arrears.

(a) The PITI payment for new property shall not exceed 38% of the gross income of the applicant(s).

(b) a database of homes available for sale will be maintained by an appropriate authority from which the applicant can choose from.

(c) Normal credit score, credit history and credit debt load requirements shall be waived when underwriting new mortgage loan, as long as the household expense ratio is 38% or lower with no exceptions. Deferred debt which will begin amortizing within 24 months shall be included in determining current housing expense ratio.

(d) Homes under this program may be purchased for 100%, no money down, but private mortgage insurance and regular documentation fees will apply.

(e) Homes which are un-inhabitable or require substantial repairs / rehabilitation shall not be used for this program.

4. Purchasers of residential property shall qualify for a $5,000 tax credit in the year in which the home was purchased.

5. This bill does not obligate other banking interests outside the Government Sponsored Enterprises (FNMA and FHLMC) in the United States, nor does it automatically imply the right to anyone to receive these mortgages.

6. The terms of this bill will expire in 24 months from the date of signing unless re-authorized by Congress.

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We present three representative examples to illustrate the benefits of our plan.

EXAMPLE 1, Homeowner in Good Standing. This owner purchased a home in 2003 for $160,000 with a 5.5% mortgage rate at a loan to value exceeding 80% using private mortgage insurance (PMI). Currently the home has an appraised value of $210,000, but because of financial problems years ago, lenders are unwilling to refinance for less than 6.5%. The homeowner took out a second mortgage subsequently for $30,000 to consolidate consumer debts. The current balance of the first mortgage is now $144,000. The homeowner has now been current on the mortgage bills for the preceding 24 months.

Under this plan, the homeowner is allowed to combine the first and second mortgages into one new loan at 4% interest, no PMI is required after a new appraisal with the present loan to value.

Existing Mortgage:
1st Mortgage of $144,000 @ 5.5% current principal and interest payment $907.
$187 escrow for tax and hazard insurance.
$138 PMI payment
2nd Mortgage of $30,000 @ 11% required interest payment $351.
No other monthly credit obligations.
Total monthly housing expense of $1583.
New Mortgage:
1st mortgage of $174,000, 30 year fixed rate at 4% interest.
$187 escrow for tax and hazard insurance.
$830 principal and interest
Total housing payment is $1017.

Homeowner realizes a reduction in housing expense of $450 a month without the need for any other stimulus checks or handouts which can be used to pay off other debt, shop for cars or other consumer items.

EXAMPLE 2: Distressed Homeowner number one. A homeowner purchased a home in 2005 for $150,000 using what is commonly known as a "subprime mortgage" with an adjustable rate mortgage that has since increased from 4% to 7.5%. The balance on the loan is currently $140,000. Due to the rate adjustment, the owner can no longer afford owning his home, and he is now over 60 days late accumulating $5,000 in arrears and penalties.

Existing mortgage:
$140,000 balance at 7.5% interest rate requires a principal and interest payment of $1048.

New mortgage:
$140,000 30 year fixed rate mortgage at 4% interest requires a payment of $668 (P&I only).
Mortgage relief loan costs $150 per month.
Total housing payment is now $818.
Homeowner saves $230 per month in housing expense.

EXAMPLE 3: Distressed Homeowner number two purchased a home in 2007 for $275,000 in 2006 with a 30 year fixed rate mortgage at 6.5% interest rate by qualifying for the loan at the time of purchase. He has since lost his job and has taken a new employment at a lower pay rate causing financial hardship. A new loan for $270,000 is provided at 4% fixed rate, and the term of the loan is also extended to 40 years.
Original loan:
$275,000 @ 6.5% fixed interest, 30 year amortization is $1738 (P&I only)

New loan:
$270,000 @ 4% fixed interest, 40 year amortization is $1149 (P&I only)
Homeowner benefits by $589 per month in reduced housing expense.