There was some talk late last year of Fannie Mae and Freddie Mac lowering interest rates to 4% - 4.5% as a way to stimulate home buying once again. I haven't heard anything since then and I think it is about time we take a grassroots effort into making this or something like this a reality.
With artificially low mortgage interest rates guaranteed by the government investors will come into the market and buy the depressed properties. The banks need to get these types of properties off their books and get back to good basic fundamentals which have been lost by most institutions over the past decade.
Here are the highlights of my plan as the new real estate advisor to President Obama (wouldn't that be nice)...
- Conforming loans nationwide on single family to $750,000 with an interest rate of 4%
- Jumbo loans nationwide on single family to $3,000,000 with an interest rate of 4.25%
- Maximum Loan-To-Value for non-owner occupied set at 70%
- Maximum Loan-To-Value for owner-occupied set at 80%
- Minimum credit score of 680
- For the first 6-months of this program as an incentive to get people buying the interest rates will be 3.5% for conforming and 3.75% for jumbo.
- All loans are fully amortized for 30 years with no change to the interest rate.
There are many reasons this would work. Let's start with the fact that investors would come in and buy property as they could rent the properties and have a positive cash flow. The government in securing these loans would have little risk as they have between a 20% and 30% equity position. Wall Street would purchase these investments as they are ultra secure and although they aren't paying very much the other options available today for investors are not much better!
We need to drop the talk about first time homebuyer credits as first time homebuyers are not going to get us out of this economic funk. Although it is the American dream to be a homebuyer the truth is not everyone should be a homeowner. We need a balance of homeowners and renters in order to have a stable market. If we concentrate on bringing investors back into the marketplace we will be on our way to economic recovery. The only way to bring investors back is to make it so attractive that they do not have any other choice.
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