Monday, February 02, 2009

Trickling Up - Part II

I enjoyed the Super Bowl yesterday – it was a very good game, for a change. However the Commercials were not as good as they are normally. The Halftime Show was good but not as good I had expected. And I’ve been a Bruce Springsteen fan since 1973.

Now let’s go back to Jon Stewart’s Trickle Up proposition. I’m sure that at least one person on President Obama’s staff watches the Daily Show. I’m also sure that the President himself has viewed the Gwen Ifill interview. This should give him something to think about when they re-hash (or should I say un-pork) the Economic Stimulus Bill.

Don’t bailout the large Corporations or the Banking Industry; give the money to the people. Give the money to the people is something that I have been saying for the past 7 or 8 months.

I have a simple plan and here’s how it works. And this plan will stimulate the Economy.

The first issue that I will address is Mortgages.

Many people bought overpriced homes between 2003 and 2005. They panicked because prices were escalating monthly. There was a construction boom here in Florida at that time. It kept a lot of Illegal Aliens of Spanish descent working. But it also increased the price of the used homes on the market. Real Estate Agents use a tool called comparables to judge the market value of a resale home.

At the same time the banks and mortgage brokers were loaning people money that were marginal credit risks at best.

For example – there is a house on the market (2 miles from where I am living), that was built in 1997, it has 3 bedrooms and 2 and ½ Baths, with a screen enclosed swimming pool, mahogany flooring, nearly 2000 sq. ft. of living space, sitting on a half acre plus of property. Assessed Value of $207,000 (Public Record) and an asking price of $132,905 (this is not a short sale).

The people that bought it in 2003 and paid $170,000 for the property went into foreclosure last year and the bank took it back and has listed it with a Realtor. It’s been on the market for 238 days. No nibbles no bites.

My proposal to use the Economic Recovery money wisely is:

1) The Fed would pay the mortgages down to the current fair market price of the property (For example; if you have a $200,000 mortgage and the fair market value of your home is $140,000 they would give $60,000 to the lender, reducing the mortgage to $140,000) This money would go directly to the lending institutions that are holding the mortgage. In turn these institutions (or others) would refinance the new loan at current rates. Thus lowering the mortgage payment.

This would only apply to people that have owned and lived in their homes for at least a year as of December 31st 2008. The homes must be valued at less than $750,000 to qualify (most of the homes over that amount have probably increased in value, despite the current economic downfall).

Now this is an Economic Stimulus

The Government would have to create about 5000 new jobs (knowing the way the government (HUD) works probably closer to 10,000 jobs) to work this program.

Now this is an Economic Stimulus

What about people who rent? Shouldn’t they get a break? Yes they should.

For people paying less that $2500 per month (if you pay more than that for rent, you are either well off, insane or live in New York City) in rent, the Government should pay 6 months of their rent in advance. This is a maximum total of $15,000 per household. This program would also create new Government jobs.

And what are these people (home owners and renters) going to do with this money saved. They will spend it, invest it or bank it.

Now this is an Economic Stimulus

Parts III and IV will follow shortly.

The Beach Bum

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Blogger alfredo_tomato said...

We need to put people back to work. Massive unemployment could destabilize a country.

Tue Feb 03, 12:37:00 AM  
Anonymous DE said...

Oh, oh, oh, much would all this cost?! Assuming it's a manageable amount, would it include well-off folks who can afford their mortgage payment with no problem? Or just people who CAN'T afford their mortgage payments? Who decides? And shouldn't it be considered an interest-free loan from the government (from the taxpayers, actually) that has to be repaid when the place is sold, at least to the extent there's a gain from that low market value? Or maybe the government (again, the taxpayers) should be viewed as part owner of the property and be entitled to a pro rata share of the proceeds when eventually sold.

But more importantly, it ain't a stimulus if it goes in the bank, and as you pointed out, this money definitely goes in the bank.

Re giving six months rent to renters, how about giving six months mortgage payments to homeowners? Not to exceed $2500 a month, of course. But, then, what about those folks who have no mortgage? And around half of all homes don't have one.

Tue Feb 03, 11:41:00 AM  
Blogger alfredo_tomato said...

I've paid off my mortgage, but would love to contract someone to redo my kitchen. Ten grand would do the trick and maybe have enough left over to rebuild the back deck.

Thu Feb 05, 03:06:00 PM  
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