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Past this comment on to the Rick Davidson
Many economists will tell you that the depressed condition of the primary housing market is one of the main reasons the economy has not fully recovered. The unemployment and foreclosure crisis has been put on a back burner because so far no one has presented a good solution for it. I believe if we empower the people with the tool they need, they will bring about their own economic recovery without the government increasing its debt.
We created the current financial crisis when the middle class and other people accepted mortgage terms that were destined to create economic defaults. The collapse of the primary housing market destroyed an enormous amount of the middle class's disposable income and confidence. This is what had to be repaired before roads and bridges were repaired to increase economic activity.
We are in a very critical period of the current economic turmoil. The government deficit spending programs have not been very successful in improving the economic condition of Main St. This is where the private sector has the power to succeed where the government has failed. I believe we need new mortgage terms made available for all primary homeowners, not just for people that are having financial trouble. Mortgage terms that will help all of the middle class and other people succeed financially. The middle class is so large, if they succeed financially, the nation's financial condition improves.
The new mortgage terms should be similar to the current 5/1 Adjustable Rate Mortgage but with the following changes. The starting interest rate would be 3%. The interest rate should increases .25% per year. The interest rate would stop increasing at 5%. Underwater mortgages should be reduced an additional 30% of the monthly principal and interest payment each month until the value of home equals the unpaid balance of the mortgage. or up to 10 years whichever occurs first. New purchases and refinances would have to qualify at the 5% interest rate so we reduce the chance of a default. A prepayment charge should be included, if needed, where allowed.
What will the new mortgage terms do for the economy?
It will improve the primary housing market, reduce unemployment and government deficits. The financial condition of Fannie Mae and Freddie will improve, which will save taxpayers billions of dollars. The new mortgage terms will increase people's disposable income and confidence which will increase aggregate demand, decreasing unemployment and foreclosures. The foreclosure inventory will be sold quickly to owner occupied owners.
We can increase employment, by increasing total demand. Less people will be government dependent. More taxes will be collected as the economy improves and people go back to work. As we reduce our deficit, the dollar will strengthen. Oil prices will decrease. Transportation fuel prices will come down. Production cost will decrease.
To help prevent the excessive use of credit and increase the saving rate, when equity prices are rising too quickly, we need to enact the Zero Inflation Taxation Policy to help maintain economic balance in our economy. With the Zero Inflation Taxation Policy enacted, long term interest rates will stabilize and not rise. Stable interest rates and full employment will improve our nation’s standard of living and bring prosperity to our economy. Our economy will become more productive. Our savings will not be used to create inflation psychology driven investments, which helps create higher prices.
Leonard C. Tekaat is a retired economic analyst and scholar, with over forty years’ experience in the world of home financing and investing in housing. He is the Chairman of a special Committee for Economic Reform and a Better Economic Future. He is an author and former small business owner. For more information search Leonard C. Tekaat