Save America now: the two percent solution

Every economist believes that it was the subprime mortgage scheme, coupled with the burgeoning housing market that got us into this mess. They all agree that it will take the stabilization of that sector of the economy to set the bedrock for recovery.
On this tenth anniversary of the 9/11, it takes reflection to see how everything spiraled out of whack. We stood proud to be Americans. We were ready to take on all comers. We were one.
What followed was our nation and Americans stacked up in fear waiting for the unknown. Waiting for the next big one sided battle. We wanted to get the enemy. But slowly, the enemy of us personally, one-on-one, was how it affected me/us. We went into a shell. 2002 was a dreadful year economically. I, as a Real Estate Broker, felt it first hand in every sector of the market. Many lost their entire savings. The economy was headed into the tank because no one was spending money. They didn’t know how to plan. The Administration called for Americans to come out of their fear shells and spend money. Live their lives. The Congress passed tax cuts to stimulate spending and entrepreneurial spirit. It worked on steroids when Congress got way too zealous.
Following the 2000 presidential election, Congress was split 50-50. Nothing could get done. Lots of games were played. One huge game was to set up Fannie Mae and Freddie Mac to be pawns to a securitization of mortgages. Historically, F&F only bought notes with 20 percent equity behind them, as it has turned out, at the taxpayers’ expense. The major banks were complicit in that they didn’t actually keep the loans they made but made big points off the subsequent owner of mortgages. When Wall Street saw that F&F would actually buy worthless notes, they took advantage of that historical 20 percent spread. A lot of people got rich fast. The byproduct was a spiraling real restate market that was high flying. The Administration tried to reign in F&F in 2004 but to no avail. The sentiment was from the left: “We’ll give you the funds to fight the war, but we’re going to take big spending and legislative mischief.”
Especially mischievous were the banking committees in both the House and Senate and their ties to Wall Street and F&F. If you’re looking for the culprits behind the whole mess, look no further than to those who formed the legislation from those committees who were in charge. I don’t want to get into finger pointing. I’ll leave that up to your own investigations.
Given the foregoing and as simplistic as possible, it is clear that everyone from the young upstart Shearson Brothers intern to the President of the United States was complicit in getting us to where we are right now. I watch as everyone is scratching their heads on how to fix this awful economy, with its malaise, uncertainty and under the table style of living.
I know how to fix it.
When I proposed the following, I was initially encouraged by Rep. Bilbray’s office. I was welcomed into Rep. Darrell Issa’s office, twice meeting with his local chief of staff. But, the idea/plan was looked at being too difficult to implement. On a side note, I am thrilled to have this megaphone to bring this proposal straight to the everyday man, woman and student. Let’s have North San Diego Coastal be the force that forces the implementation of this plan. This is a plan that will cure the American economy, and every nation’s economy instantly, and here it is: Congress, via Bilbray and/or Issa, should immediately move in favor of every mortgagee of Fannie and Freddie loans —home, apartment and commercial to:
Immediately stay all foreclosures in process, starting with Fannie and Freddie;
Freeze all loan balances where they currently are, including all back payments;
At mortgagees options, make all loans payable at two percent interest only for the next 10 years;
Give every mortgagee a three-month moratorium on loan payments before commencement;
Leave the market for all new loans alone. Let the free market dictate future rates;
Remove all tax credits for mortgage interest and taxes, including commercial loans.
The removal of tax credits should satisfy the far left and the first five points will satisfy the right and center. With such low monthly interest payments, for the majority of homeowners, the Standard Deduction will likely be most advantageous. The legislation shouldn’t be more than one page long. Implementation could be swift.
I shouldn’t even have to explain the benefits. Foreclosures will cease, which will instantly stabilize the housing market. Homeowners would be able to rent their homes out if unemployed and likely receive cash flow. Homeowners that stay in their homes will find an instant chunk of new disposable income. Most homeowners will breathe a sigh of relief knowing their lives have stability for at least the next ten years. Optimism will reign. Homeowners will pay down debt, buy cars, fix their homes, buy appliances, solar systems, pools, take vacations, go to the cleaners again and get their nails done. Doughnuts will be eaten. Entrepreneurial spirits will soar. Governments will prosper due to the increase in tax receipts due to the speed of money.
Oddly enough, even the bank will prosper. No more toxic loans, no more foreclosures and stability in values and an increase in lending to homebuilders.
The major banks’ portfolios of home loans are only 28 percent. The reduction they take in lowered mortgage payment receipts should not be catastrophic to their bottom line. They got us into this, they can get us out of it. In reality, in the near long term, it would actually be beneficial for all banks to follow the Fannie and Freddie mandate. The banks should follow voluntarily after the directive to F&F. If they don’t, then part of the legislation would be that F&F buy every mortgage from lenders not willing to participate voluntarily.
This simple plan, literally on page of legislation, will magically transform our economy. It should be implemented immediately. If you agree, please do me a favor and call Rep. Bilbray’s office at (858) 350-1150, or Rep. Issa’s office at (760) 599-5000 and say you support the two percent solution. Everyone wins! You can give me feedback at joe@coastalcountry.net. I’d love to hear you take on this, too.

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  1. Glenn New York says:

    Joe,
    Your 2% solution is very well thought out and most comprehensive.
    Do you think our split Congress could ever pass it?
    Where or who would be the highest hurdles to overcome?
    Do you think it would take 10 years or is that a possible point of negotiation?
    It is truly encouraging to see people like you who still care and are optimistic toward change and look toward the future.
    I hope you can take the ball into the end zone.
    Thanks for the optimistic encouragement. We truly and desperately need it these days.  
    Glenn

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