the 3.5% plan.
this plan is explained below. it is the single best plan that helps the middle class the most, bar none… and has consequences of helping out the economy in many more ways, including not only the middle class, but social security benefactors, and low income working class. (see also the example system that illustrates this plan at the end of the post)
what are these benefits:
- the Government makes large amounts of money to help pay down the deficit.
- all middle class family homeowners get on average $500 a month in spending money extra PER MONTH MIND YOU.
- Housing market would immediately turn positive.
- Hundreds of thousands of jobs are created.
- the Economy suddenly turns on a dime.
- foreclosures would stop on a dime.
- the Government makes large amounts of money to pay more social security benefits. (helping out non working families)
- “non” middle class working families also benefit because the “middle class families” will spend their $500 on goods and services produced by the working class families.
what is the plan:
the government goes into business, (even temporarily) to compete with Home loans/refinance of home loans.
(we don’t need big banks any more than we need an anchor around our neck, and the small banks are unwilling to give out the interest rates that we need to stimulate the economy, we need the government to compete with the private banks, so they are forced to lend at the new reality, the new interest rate environment) even if the private banks chose not to compete, the Government can turn around and sell these new loans back to the banks, FOR A PROFIT to the US tax payer treasury, or keep these new loans FOR A PROFIT to the US tax payer treasury every year.
what happens:
the government takes Freddie,Fannie, and Ginny, and creates a Government bank that loans out to anyone who wants one, a loan (or refinance of a loan) on their owner occupied residence at 3.5%; funded directly by the government, and the Government pockets the interest rate directly, no middlemen. (the US tax payer treasury pockets the interest rate directly) (this would involve the changing of the FNM FRE charters which currently prohibit lending directly)… changing this rule is already being floated as an idea.
(I should have made this clearer: this is mainly for refinancing existing home loans, not just new loans, that is where the extra $500 (on average) PER month in “middle class family’s” pockets comes from, the 20% down is the equity value in the house already, (what most middle class families have in their houses already, remember the effect of lowering interest rates this much is to stimulate more buyers, which has the effect of not only stopping the loss of market value, but actually re-inflating the price of houses), this particular plan is not about helping people who can not get a loan, that is for other plans, however this plan has a side effect of helping people who can’t get a loan too, guess where the $500 PER MONTH is spent. This Plan is about helping out the “middle class” specifically, but the side effects on helping all families (not just “middle class”) is huge)
the requirements to families:
20% down, or 20% in equity in existing home loans.
a fixed small fee for an appraisal at current market prices.
a fixed small fee directly to the government to process the loan.
owner occupied. (one residence) can be new loan or refinance, no difference.
3.5% interest rate, no points, no other fees. all done online, (ALL OF IT, no middlemen).
chose 5 year, 10year, 15year, 20year or 30year loans.
interest rates are only 1/2 deductible on family tax returns.
that’s it, no other requirements. no credit checks, nothing, the 20% down, or existing equity is what will keep loans in line. (remember the immediate effect of this lowering of interest rates is to make homes more valuable, (increasing equity))
the effect would be immediate, middle class families would have an on average $500 stimulus package PER MONTH extra money that would immediately start turning the economy around. people would again go out and spend money and the economy would make an immediate jump.
the government would make money on the deal too, because homeowners in general pay their home loans on the order of 97%, the 3% loss rate would be made up by selling the house immediately on the market at 20% less the market rates. (20% down remember)
the government would turn around and sell the loans for a profit and guarantee them to anyone who wants to buy them, and guarantee a 1% rate to who ever wants a loan to buy these… no one can leverage more than 10 times on these.
the government makes more on tax returns with many more people buying houses, and the job market it creates, the 1/2 deduction on interest rates makes even more for the government. (remember in game theory, the only way you win, is if everyone involved wins… a win, win, for everyone involved).
there are unintended consequences but most of them are positive, and far out way any negatives.
consequences like an almost guarantee that the stock market would jump 1000 points the day this plan is announced…
and now for an illustration as clear as possible explaining this idea.
lets use as an example a $4 trillion dollar system, and we have 3 players. (1) the government, (2) the family, (3) the banker.
the example as it stands now:
(1) the government takes $2 trillion dollars of the system in taxes.
(2) the family keeps $1 trillion dollars, after paying the banker $1 trillion in interest/principle payments.
(3) the banker as stated before has $1 trillion in interest and principle payments.
now as it stands now, the banker is not using the $1 trillion it has to do anything with the economy, it just sits there at the bank, (this is a verifiable fact). the government uses the $2 trillion now to stimulate the economy (even the waste is used to stimulate the economy because that money is spent, even if on a lear Jet upgrade, (which is built by “middle class families”)), and the family spends the $1 trillion which also stimulates the economy.
so we have, as it stands, $3 trillion in the system that is doing something good for the economy, and $1 trillion sitting in banker’s bank accounts doing nothing.
an example if we use my plan…
(1) the government takes $2 trillion dollars of the system in taxes.
(2) the family keeps $1.5 trillion dollars, after paying the government another $0.5 trillion in interest/principle payments, (rather than paying the banker $1 trillion)
(3) the banker is eliminated from this system.
so with my plan, the banker is not even in the system. the government uses the $2.5 trillion to stimulate the economy (even the waste is used to stimulate the economy because that money is spent, even if on a lear Jet upgrade, (which is built by “middle class families”)), and the family spends the $1.5 trillion which also stimulates the economy.
so with my plan, $4 trillion is in the system that is doing something good for the economy, rather than just $3 trillion (if the banker got the $1 trillion, and as they are doing now, just letting it sit in the bank)
even then the banker eventually makes money from mortgages, because the government then sells it’s loans to the banker at a profit to the tax payer, and the government guarantees the loans, so the banker does make money from the loans that are sold to it.
this is a virtuous circle, everyone wins in this, it simply takes the excess away from the banking system (that isn’t even being used anyway) and distributes it to the economy.