Mortgage Rate News

With all the largess flowing from Washington, it’s starting to become difficult in terms of figuring out where money is going (no one’s worried about where it’s coming from, at any rate). And I know everyone’s all about the Citi bailout this morning, but another stimulus may be on the way. This one may have more of a direct impact on “ordinary” folks — or at least first time homebuyers. The new stimulus is one suggested by the National Association of Homebuilders (NAHB).

Trying to fix the housing market first

As one might guess, the National Association of Hombuilders is fairly certain that the government is throwing money at all the wrong thigns right now. Instead of fixing the housing market and trying to get things back on track with homeowners and home prices, the government continues to chuck money, through bailouts, at a number of companies that made downright poor business decisions. Instead, suggests the NAHB, the government should aim at creating measures to help get the housing market moving, mainly by:

1. Offering a tax credit that is larger than the $7,500 offered right now to first time homebuyers. Also, NAHB doesn’t think that the credit should be paid back.
2. Subsidy for mortgage interest rates that would, according to Mortgage News Daily, “target interest rates on 30-year fixed-rate government-backed mortgages for conforming loans that would bring rates down from the current 6.0 percent range to around 3 percent for those made in the first half of next year and 4 percent for those originated during the third and fourth quarters of 2009.”

It’s an interesting thought — focusing on people who might be interested in buying. However, it does not address some of the problems facing the economy right now. Like, you know, foreclosure. Instead, the NAHB plan runs the risk of putting more unoccupied homes out there, without doing anything to forestall foreclosure. The other issue is that first time homebuyers can’t take advantage of any of this as long as they can’t get approved for mortgage loans.

Back when my parents bought their first home, a 20% down payment was a must. You weren’t even considered for  home mortgage loan unless you had 20% down. Straight-up. No fancy piggy-back loans or other “creative financing.” Nope. You had to have a 20% down payment.

Somewhere between when my parents bought their first home 30 years ago and my husband and I bought our first home last year, the times changed. (We bought our home with a rather small down payment — no 20% for us.) You could get fancy financing. Buying a home was possible with a 0% down payment. Private mortgage insurance could be purchased to avoid the 20% down payment requirement.

But the mortgage lenders are starting to wonder if maybe the way things used to be done really were better. AllFinancialMatters reports that some mortgage lenders are starting to require a 20% down payment again. At the very least, some are requiring 10% down. You might still find someone that will accept 5%. While I think 20% down may be a litle overkill with home prices now (my parents put 20% down on a $50,000 house — $10,000), when 20% down on a what passes as a modest home at $150,000 is $30,000. But it wouldn’t hurt to require that someone buying a $150,000 home at least have $15,000 for a down payment.

The fact of the matter is that not everyone is in a financial position to own a house. It would be nice if everyone could buy a home, but it just isn’t feasible. Some people just aren’t there. They don’t have the financial stability to pull it off in a way that is sustainable. And trying to get them there — through low teaser rates, interest only loans, creative financing and 0% down payment options — just won’t work out well in the long run.

Obviously.

There are a number of plans being proposed right now with regard to how to fix the mortgage mess by preventing foreclosures. Unfortunately, a lot of the ideas circulating out there are variations on a familiar theme: Throw money at a problem and hope it goes away.

Someone else is coming out with a new idea, though. At Middlebury College, an economist named David Colander is suggesting that everyone be issued foreclosure vouchers — even those who are not in danger of foreclosure. RealEstateProArticles.com has the details of the foreclosure voucher plan:

The key element in Colander’s plan is the use of foreclosure vouchers. The government would allot foreclosure vouchers to taxpayers according to income levels, with the lowest earners receiving the biggest voucher amounts and with people in certain high income levels excluded from the scheme.

The vouchers are foreclosure vouchers and therefore can only be used in two ways: to buy foreclosed properties or to pay mortgage loans to save homes from foreclosure.

For recipients who cannot use the vouchers because they are not facing foreclosures or are not interested in buying foreclosure properties, they can sell their vouchers on the secondary market at a discount. The discounted vouchers would attract investors to the foreclosed housing market, creating housing demand, restoring home prices and ultimately contributing to the nation’s economic recovery.

I admit that I find this suggestion intriguing. It could, in theory, lead to additional real estate investing in foreclosed properties, and stop some foreclosures from happening altogether. And the foreclosure vouchers would help reduce the amount that buyers would need to borrow, making it easier to get financing for the remainder of the purchase amount of foreclosed properties.

It certainly seems like a win-win for everyone involved. Of course, these plans have various Unintended Consequences that can throw the whole thing off track. But I do like that it’s something different. After all, it is supposed stimulate investment, and it offers potential rewards to those who have been making prudent financial choices.