Better Uses of the Financial Bailout Money

What we need are people occupying our current glut of empty homes and paying mortgage payments; not paying mortgage lenders for letting these homes sit empty, become run down and greatly depreciate the value of the homes in the rest of the neighborhood.

We need home prices to begin to rise again so that good hard working people don’t have to forfeit all of their hard earned equity when they find themselves in a position where they need to sell their home. This need may be due to job transfer, age or maybe relocation for health reasons. It is not always to upgrade or because they can no longer make the mortgage payments.

But, the bad actions of a few are unfairly hurting the good people who have made their payments religiously on time for years and years.

So perhaps the government should institute some programs that would help people get into homes and start paying the lending institutions again. Let’s rebuild America from the ground up.

1.) Assist Buyers with Down Payments for Homes

I have been in the real estate and mortgage business for a number of years and also have a few years of ‘just life’ on me.

One thing that I have learned is that the majority of young people in our country today do not know how to save for anything; not a rainy day, not furniture, not a car, not college and certainly not a home.

And why is that one might say; could it be instant gratification plus the easy availability of credit in this country. Or, could it be lack of training by parents and learning institutions; or a little bit of both.

Let’s set up some government programs to help get people who can pay, but do not have savings for down payments and closing costs, into homes and let them start paying these mortgages instead of the government paying them with the tax dollars of other home owners.

I don’t propose that we give people anything. I am sick to death of all the government giving that we already have.

But, since we have raised a group here that doesn’t know how to save, we have to do something to be able to work with these people. I acknowledge that it is difficult to save for a new home and pay rent, especially if you are a single parent.

If people have a reasonably decent credit score (nothing outstanding) then they are usually a good risk for credit. I know that from renting to them, and holding mortgages for them, myself.

So, let’s allow them to get a mortgage at a decent interest rate. Make them a loan of up to $10,000 (or actual costs) from the government bailout money to be used for their down payment and closing costs. This loan would be interest free to the home buyer and should be paid off monthly over a ten to fifteen year period.

Anyone using this program should not be allowed to purchase a house where their house payment will be higher than their current rent plus 25% of the current rent. If their current rent is $500 then their house payment can be no more than $625, including their no-interest payment for their down-payment loan.

Require the buyer to put at least $500 out of their on pocket toward the purchase. When anyone rents they have to pay a security deposit.

This program should not be limited to the low income. There are a lot of middle income people who have difficulty saving money.

This 100% financing is different from the sub-prime lending that got us in this mess because the mortgage will be at a reasonable, fixed interest rate. Their payment will not go up in a year or two due to an ARM mortgage.

2.) Eliminate PMI

I and others have paid PMI for years and years, supposedly to cover the mortgage if we don’t pay. Why hasn’t that covered a lot, if not all of the foreclosures?

Do away with PMI, because this obviously is useless. This would reduce the house payment for everyone.

If PMI is retained, then pay it for everyone, and I mean everyone, out of the bailout money.

We need to work with the masses to turn around our economy, not just a few poorly managed companies?

3.) Turn the Media to a Positive Slant

We need to turn the media around to something more positive so that people are not afraid to buy right now. This is an absolute must.

The media must encourage new growth and home buying. Even people with down payment money currently available to them, are afraid to buy right now, because of all the bad press.

4.) Fund Teaching People How Too Budget Their Money

Pay for a reputable financial advisor to work with these new home buyers who need assistance for three months prior to them being able to purchase a new home.

The financial advisor needs to be able to sign off that he or she feels this person understands how to manage their money responsibly and will be able to make their house payment.

Granted their will always be situations where the unexpected loss of job or health problem occurs and people will not be able to hold on to their home.

The key thing that I would hope that we can teach is that things like cable TV, excessive Christmas toys, excessive entertainment, etc. are not more important than keeping a roof over ones head.

5.) Encourage Savings

Another program would be for banks and lending institutions to set up a “new home” savings program where the funds must be deposited on a monthly basis, used for the purchase of a home and these funds are tax free. In addition, the bank would pay a higher than the norm (covered by bailout money) interest rate on the savings. When the buyer has enough saved, then they can purchase a new home and use these saved funds for down payment and closing costs.

If they miss a monthly payment then they lose their tax free status and interest.

I know, I know the buyer could just open a savings account and save money, but that would not be tax free money and it’s a mind set thing. It is just like Christmas club accounts at the bank; one could simply put that in a regular savings account also. We are trying to teach and encourage people to save here for specific things they want, plus recover our housing industry.

The downside to this program would be that it would not put people into homes quickly. Perhaps we need both programs. As the real estate market stabilizes the down payment loan program could be phased out and folks could be migrated to the “new home” savings program.

Another option that would get people into homes quicker would be to use the bailout money to match dollar for dollar the future home buyers’ savings. This money could only be used to purchase a new home. In this case there would be no tax free feature.

6.) Fund Teaching People How Too Improve Their Credit Scores

A lot of people simply do not understand credit scores and how to rebuild their credit rating after something in their life has happened that has brought their credit scores down. Their bad credit scores may have been caused by actions of an ex spouse or simple things done out of youth and ignorance of how credit and credit scores work.

Good people don’t understand that if they get into a situation where they can’t pay for their car and they voluntarily return the car to the dealer that that is still considered a repossession and will do major damage to their credit scores.

Good people don’t understand that if they pay part of the payment due, this counts as a late payment in calculating their credit scores.

Some people reading this will say duh!!! Anybody should know that. But, keep in mind that not everyone has had the opportunity to learn from their parents how to manage their money. It’s certainly not taught in our schools. And few young people take into consideration what marriage is going to do to their credit rating before they get married.

Few people know that mortgage loan officers get paid nothing until a loan closes. So the time they spend pulling someone’s credit report, reviewing that credit report with the prospective buyer is free gratis.

Therefore few mortgage loan people want to spend any time teaching people the errors of their ways and how to correct them; and one can well understand their position. As a result, most loan officers will just simply say you can’t get a mortgage because your credit scores are too low and get rid of the person as soon as possible.

Another good use of government bailout money, and to help people get into homes, is to fund the time that a loan officer would have to spend to help people understand credit scores, review their credit report with them, recommend or help them with things that they can do to correct or improve their credit scores and better manage their financial situation.

Some thought and guidelines would have to go into setting up this program to keep it from being abused. But a bunch of committees to study the situation and take years to implement this is not the answer either.

Funding could also be established to pay for books, e-books or courses that future home buyers purchase in order to learn how to improve their credit scores on their own. This might be the best long term education for some people because they will actually learn how to maintain their situation as well. Others may need more hand holding by a mortgage loan officer.

7.) Fund Renovations of Foreclosures Sitting Empty On the Market

Create a government program which would loan investors the funds with which to make repairs on all the foreclosures that they purchase and rehab. This loan would not have to be paid back until the house sells. Offer a low interest rate which should be paid along with the loan, at closing, when sold to the new homeowner.

So many homes are sitting on the market in very run down condition. And the longer they sit there the worse they get.

New home buyers do not have the funds to make all the repairs needed plus buy the house. But more importantly most do not have the knowledge on how to manage getting all these repairs completed quickly. They would have to be paying rent and a new house payment while the repairs are being made. This time period could be several months of two payments.

Closing Comments

Advertise these programs profusely and start getting good people back into homes. As I said earlier, these programs should not be available just to the low income person. Other income levels are struggling also.

The bottom line of all this, is that we need to bailout the lending institutions by putting people back into these homes and having them pay these mortgages again. When homes are not empty, communities as a whole are improved. Service and repair personnel have work-jobs are created. People have pride in their accomplishments.

When people are working and buying, then the economy is good.