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What This Country Needs Is A Good 5% Home Loan

What This Country Needs Is A Good 5% Home Loan by Bill Roberts

Here we are in the middle of a mortgage meltdown and a presidential campaign.

What good can come from all this?

One of the things that has really bugged me is all the negative comments made about people that couldn't qualify legitimately or afford the houses that they bought during the hot market of a couple of years ago. Why do you feel that these people are undeserving of sharing the American dream?

I would like to see them all get home loans.

Maybe we can come up with a new mortgage product that is even easier to get than a sub-prime stated income loan.

My thesis: Everybody deserves to own their own home. I don't care if their credit sucks or they don't make enough money or any other qualifying criteria.

Everybody needs a place to live. They deserve to own that place. To deny them that right is tantamount to slavery.

You want them to qualify? Why? If they are paying rent then they could make mortgage payments, can't they?
It is as simple as that. But what if they miss a payment or two? Is it the end of the world? What's the big deal? Just "add" the missed payments to the balance due and they will pay it off eventually.

No Foreclosures

This No Qualifying Loan must also be exempt from foreclosure without special judicial supervision. The public good is served by preserving this home ownership, not preserving some bank's unnecessary profits...

The security for the loan is the home, but not by foreclosing it, but rather by the owner maintaining it. Over time the home owner will eventually pay off the mortgage, but nobody is going to care how long it takes.

So why should banks make this obviously bad loan to an unqualified borrower?

To effect this public policy of universal home ownership
It's not their money anyway

To understand this concept we need to examine just how money comes to exist in the first place. Banks re-lend "money" that is deposited to their account according to reserve requirements established by the Federal Reserve Bank when the "Fed" buys or sells treasury bills and bonds. Some people refer to this as "managing liquidity" but in reality what they are doing is "creating" money out of thin air. So just how much profit do they deserve on this new (free) money?

There is also the multiplier effect by re-lending the deposits of their customers. Almost all money "exists" as an entry in a bank's accounts as opposed to currency. Then they (the bank) can lend a percentage of that deposit to someone else which will end up in another bank account. And so on and so on. Every time they do this they are creating new money.

FHA?

I think that home ownership for everybody is a higher good than a little more money for some bank or banks. The Federal Government can provide for these loans by "issuing" bonds. The Federal Reserve Bank can "buy" those bonds. This could be a new FHA product backed by government bonds. The whole country will have a stake in seeing to it that home ownership is enjoyed by everybody that wants to participate.

The "upside" is that it would be good for the economy. There is no "downside." What candidate is going to pick this up and run with it?

Posted by Bill Roberts - "Baby Boomer" Retirement Planning on 02/19/2008 10:54 AM

Comments (27)

bill roberts real estate, real estate investing, baby boomer retirement planning, mortgage planning, new mortgage product

Post is included in group: Southern California Real Estate Forum

27 Comments on What This Country Needs Is A Good 5% Home Loan

FEB

2008

Well thought out and stated. I agree...will it ever happen again...who knows...keep posting.

We have such a loan, the Option ARM which gives the home owner the ability to pay a small amount and add the rest to the loan balance. I always thought that was a pretty good instrument.

I can't agree with the "20% only down" proponents because that simply keeps families with children out of home ownership. It's hard enough to make ends meet today without expecting a family to save $100,000 or more just to join home ownership.

We've sold a lot of homes to folks with 80-20 loans and out of hundreds of buyers only one defaulted, which was predicted to default.

I do believe that some semplance of good credit is necsssary. Otherwise we'll wind up with squatters and that will lower the market value. But, I say, if a buyer has clean, not high credit scores necessarily, sell them a house and give them a loan.

Lets rotate some real estate.

Bill R,

You forgot. You also want world peace, an alternative to oil, a separate ocean for the whales, and a cure for AIDs!

This is a beauty queen type wish. My first though was he'd better be careful, with his tongue that far into his cheek he could byte himself.

Then I read: "The "upside" is that it would be good for the economy. There is no "downside." What candidate is going to pick this up and run with it?"

And I realized you must be running for office! Normally after saying something like that the politico smiles and waves at us, the smile is from laughing at us and the wave camouflages his finger.

Bill

Bill you need the teaser rate of 1.99% to get them started and then let them all sign up

Matt, Lenn, Bill A, and James

I thought about responding to each of you separately, but I just couldn't see how I was going to do it.

This is not "tongue-in-cheek" or a rehash of any existing product. This is a legitimate proposal for a new loan product that would benefit us all.

Somebody needs to challenge the commonly accepted idea that it's the bank's money and you have to be deserving in their eyes to get some of it.

After WWII when the US instituted the Marshall Plan to rebuild the economies of Western Europe and Japan, who checked their credit? By any standard they had none. But look what we accomplished!

We need a home-grown Marshall Plan. Quit worrying about their credit. Let's sell houses!

Bill Roberts

Bill R.

I'm sorry to read your 5:38 comment.

We've heard this before: "Somebody needs to challenge the commonly accepted idea that it's the bank's money and you have to be deserving in their eyes to get some of it." It's only a small variation of "from each according to his ability, to each according to his need!" No where has it worked long term. No where has such a society thrived.

While people often demand equality of out come, such as that proported by socialism, our's (Thank God) is a society of equal opportunity! Where any person can dream and attempt to achieve what ever they like. That fredom of opportunity, is the reason why so many want to come to America, despite all the negative things they may say about us.

Bill, the truth is it is the bank's money, entrusted to them by depositors and investors dreaming of profits.

The Marshall Plan was like a loan to relatives, money lent with little concern about it being repaid. It was a huge success, but 65 years latter most of it remains outstanding. Rebuilding Japan was another success, like teaching a man to fish! The only alterntives were to support them, teach them to fish, or watch them starve. I don't think any of those funds were paid back.

If the government interferes with the mortgage market who is going to invest, who is going to trust the banks with their deposits? There are many porticos attempting to buy votes with our money. Many who would freeze intrest rates 3 to 5 years, not by market conditions but by government edict.

"Let's sell houses!" Indeed With little or no mortgage money available who is going to determine who has the greater need? Increasing home cost is also a problem! If we are to mandate mortgages, what is to keep the government from mandating home cost? Say: $43.73 per square foot!

Unless you're one of the anointed overseers that gets to sit on the allocation board deciding who's deserving and who's not, I don't think a society like you propose would have much use for the likes of us.

Bill

Bill A, Shame on you. FHA allowed a lot of previously "undeserving" borrowers to become home owners. I'm just proposing an expansion of FHA's program. It will not supplant regular mortgages any more than FHA has already.

It is in all of our interests to expand home ownership. It has nothing to do with socialism, just fairness.

And it is not the bank's money. They are merely the stewards. If we determine how we want the money used, that's our business.

With all that you know about the mortgage business, you could be a real asset in affecting change.

Bill Roberts

Bill R,

"Shame" indeed! I'm not the one calling anyone "undeserving" previously or otherwise!

"It is in all of our interests to expand home ownership." Absolutely! Nothing since the VA loans after WWII has expanded home ownership as much as the sub-prime market of the last 15 years.

" It has nothing to do with socialism, just fairness." What's not socialist about using tax money or bonds backed by tax money? Fairness to the consumer is opportunity. Fairness to the banks and investors is risked based pricing!

Personally, I have a well developed disdain for the FHA. Check the ghettoes in any large city chances are they're covered by FHA's evil shadow.

"With all that you know about the mortgage business, you could be a real asset in affecting change." Thank you. The best we can do is to educate the industry and the public. That my friend is what this form is about!

Bill

Bill, Finally you bring out something we can agree on. The "projects" or tenements in the inner-cities is what most social scientists want for the poor. I want individual home ownership. A far better use for our tax money.

Bill Roberts

Interesting thought. Home ownership is more than just making the payments. There is the upkeep that goes with the home. I know you mentioned it, but I think that is where many get in trouble. The don't anticipate the costs of moving in, the lawn mower, the high utility bills, and miscellaneous repairs. Any plan like you proposed would have to have a component of home inspections to make sure these people were keeping up their properties and protecting the banks investment in them. Ultimately, none of us actually owns our home- the bank does until we finish paying for it.

I should have elaborated. Yes the public housing shelters (?) in hell. But, also look to the 235 subdivisions from the ‘70s or the 207 subdivisions of the ‘80s. Levittown offered boxes with out common walls, FHA has never improved on that idea.

Conformity like equality of out come is socialism at it's worst! Being from the Livittown eira, I'm glad I was raised a small town farm kid.

Bill

Jamie, It is that kind of thinking that I want to change. Just as it is not the banks money, it is not the banks house.

Bill Roberts

Bill A, We are both letting our prejudices show. I don't like bankers and you don't like Levittown.

But I think that we could find common ground.

Bill Roberts

I though we were more alike than different. Then I read "I don't like bankers" I started as a banker.

Bill

FEB

2008

Why buy when you can rent the same house for 40% lesss? Your post is what started this mess in the first place. I know that your livelihood depends on people selling and buying houses for commsiion but not everyone has the God-given right to own their own home. It is not hard to do the math on buying versus renting. In SoCal it is not even close; the smart people are renting! And pocketing thousands of dollars every month. That just means no commsion for you, but please dont try to take our free market down so agents can make money. Thanks

Rent a beautiful house near the beach with a pool for 3 to 4K a month or buy a rathole for 30 Years
Interest rate: 7.500%
Loan amount: $ 500,000.00
Monthly payment:$ 3,496.07 a month

When prices come down another 30% (and they will) we may have a market again. Try to be part of the solution instead of the problem.

Bill R......

I know where you're going, but I will say that we concentrate on 'Life, Liberty, and the Pursuit of Happiness", not the guarantee of happiness. I'm not quite convinced that everyone deserves to own a home, without a little skin in the game.

Bill N., It wasn't so long ago that everyone had the option of owning their own home by simply moving to the frontier. Renters are a product of "civilization" where people give up their rights to be able to live in the city and work for wages. To me that is putting "skin in the game." Too much skin.

As a social program it stinks. By not allowing these people to own their own homes you relegate them to second-class citizenship. All kinds of problems grow out of this situation. People who own their homes feel a part of the community. Extending home ownership to virtually everybody makes us all richer.

And it is not like it would cost an arm and a leg either. In the final analysis it would lift the entire economy and actually save us money.

Bill A, I read your post where you discuss your history of starting out with the consumer finance agency and then moved to a bank. But everything you have written tells me you are not Simon Legree. You truly want to help people. I don't think you identify with bankers.

Banking is more a philosophy (arrogance) than a reality. Since the beginning of banking they have been lending us our own money. No banker lends his capital. It isn't done. It is not even legal in the U.S. for bankers to lend their capital. The bank examiners would close them down if they did.

So what I am suggesting is that we put our money together to fund these loans. And because money is created by fiat, I suggest we simply "create" the necessary funds.

Ok, now I understand. You want to bring back the building and loan co-operatives!

I want the George Bailey part.

Marry Hatch: Racquel Welch

You can play: Mr Potter

Uncle Billy: Rich Kruse

Clarence: Jason Sardi

Mr. Gower: Bryant Tutas

Sam Wainwright: Bill Nazur

Harry Bailey: Ken Cook

Bert: Brian Brady

Violet : Jennifer Bukaty

Mrs. Bailey: Lenn Harley

I love the idea of building and loan co-operatives, but they were as socialist as anything can get!

I'm ready for my close up, Mr. Roberts

Bill

Bill, Are you sure Brian would agree to be Bert? I would bet against it.

No, that's not what I propose. I proposed what I proposed. Already FHA is not FICO score driven. I envision a new FHA program that is just a touch more borrower friendly funded by government-issued bonds "bought" by the Fed so as not to impact the bond market nor consume available money.

Bill Roberts

Well this old chap from London believes that Mr. Roberts has fallen off his rocker (figuratively of course), and drank too much of the foreclosure Kool-Aid that is affecting all of our respective real estate markets.

FEB

2008

Bill R.

The changes are subtle, but o'what a difference.

This time I'd have to say, it's an interesting idea. As a new FHA program, not a replacement of all mortgages it deserves great consideration.

The first version was a lot more fun. I didn't delete my comments, but I wouldn't be offended if you did.

This blog is an example of how we're all better for interacting with each other! There is no better way to clarify your thoughts than to teach. Well done/redone.

I'm disappointed, I won't get the Jimmy Stewart part. I have always admired the man and the actor.

Bill

Bill A, Gen. Jimmy Stewart was a favorite of mine also. I have a VHS of "It's A Wonderful Life" and play it every Christmas.

Bill Roberts

FEB

2008

Bill: It would be nice to come up with a Utopia where everyone could live in a wonderful home... rich or poor in the same community side by side, holding hands. It was tried in the Bubble that we are going through right now... but realism is setting in. Some people just can't afford a home unless they move here to Tennessee. We have affordable homes and our market is healthy, but slow because of the media.

Jan, You are bright and well-read. I wish you would read both of these blogs and ALL of the comments because that is where the truth is revealed.

The problem wasn't created by people wanting a home.It was created by "cheap" loans with little qualifications for investors (read that flippers) who jumped in and ran the prices up and then jumped out and let the prices fall. Actual homeowners had very little influence on prices, but they were the victims of what happened.

I don't propose any help for the flippers. I do propose that we lighten up a little on people that would like to own their own home.

Bill Roberts

Bill, I find myself agreeing with you on this issue 100%.

Jan's comment about "our market is healthy, but slow because of the media", is astonishing. Like all of us, I have read and heard comments in the media that were ignorant and misinformed. But what's going on in the economy isn't the fault of the media. And it's more than housing that's tanking. Read Matt Heaton's recent post on "Why the FED may cut deeper sooon, and the scary implications".

It ain't about the media. The banking and credit card system is failing. Fed Chairman Bernanke looked like he was on trial for his life in front of Congress recently. His comments were sobering. Our creditor nations, like the UK, are scared to death about what's going on in our economy. The stock market is shaky.

It's time to stop shooting the messenger and read the message.

Eric, I've written extensively on the mortgage meltdown. See Greenspan, The Evil Villain.

But I have to agree with Jan that the media aren't helping by their continuous cry of woe.

Thank you for your support.

Bill Roberts

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