We are not asking for any money or donations.
We are asking only that you pass on this plan to friends and neighbors.
A plan paid for by a small group of concerned citizens
A failure to act:
It was inconceivable to us that this plan did not catch on when we first published it three years ago. It was obvious to us, at the end of 2007, where the housing market and the economy were headed. So we spent the next year looking at the facts and talking about everything government could possibly do to help. Our conclusion was that the only answer is low interest rates on houses. But, for whatever reason, the people who could make it happen chose not to. The only thing we can conclude is that at the end of 2008 the decision makers in the country and the media did not comprehend what was going to happen or how long the recession would last. Or how bad things were going to get.
We are not asking for any money or donations. We are asking only that you pass on this plan to friends and neighbors.
The US government offers every US citizen a 30-year mortgage at a 1% fixed rate of interest, with interest-only payments for the first two years.
All financially qualified US citizens, not just those in immediate danger of default, would be able to finance a new or existing primary residence, with a $500,000 lifetime limit.
The reason for the plan:
Government programs have had a tremendous impact on big business. But the “trickle down” effect has not worked. Implementing this 1% mortgage rate for the people adds a “trickle up” boost to the economy because people will be able to spend and save more, and it is consumers who are the real job creators. The decline in net worth, wealth, and America’s standard of living will be reversed. Most important, the dignity and self-esteem of the American people that has been lost will be regained.
Why the plan will create jobs: It will let the people save and spend more.
When the US Government refinances a 4% mortgage at 1% and you pay only the interest for two years, it will cut the monthly payment on a $180,000 loan from $859 to $150 a month. That is an extra $709 a month! An extra $8,512 a year! For two years. Money you can save or spend. (Minus some additional taxes due to a smaller interest deduction.) After two years, if you have a 30 year mortgage at a 1% fixed rate, instead of 4%, your monthly payment on a $180,000 loan is $614 instead of $859. That is an extra $2,940 to save or spend every year for the length of the mortgage.
Why the plan will save homes: It will stop home prices from falling.
It will stop people from walking away from “underwater” mortgages by making their mortgage payments less than rent, which will prevent many foreclosures and turn the housing market around. We believe this plan will increase home values, which will offset some of the financial losses experienced during the past years and help stop foreclosures.
Why the plan will eliminate the debt: It will eliminate the federal debt in 10 – 15 years. This is a government loan program—not an increase in government spending—which means the money will be repaid. Plus, the economic expansion it generates will increase federal and state
revenues while decreasing federal and state spending on unemployment and welfare. And taxpayers will have a smaller interest deduction, because they will pay less interest on their mortgages. Annual deficits will turn into surpluses of $1 trillion to $2 trillion a year, which will eliminate the $15 trillion debt in 10 to 15 years if all the extra money is put toward the debt and not spent by Washington.
The bottom line: US citizens deserve and need this plan.
The American people who helped build this country deserve and need a plan like this—a plan that will help them directly while also stimulating economic prosperity, just like the GI Bill after World War II that gave returning veterans the opportunity to purchase a home at a low mortgage rate and virtually no down payment. In fact, the GI Bill is the model for this plan, because it was the GI Bill, not World War II, that ended the Great Depression and created the greatest era of expansion and prosperity in American history. Today, as then, the purpose of a plan focused on people and housing is not only to end a long-lasting recession, but to create prosperity that will last for decades.
What do the numbers look like?
There are almost 100 million housing units in America, with an average value of $200,000. The total value of existing mortgages is estimated to be about $10 trillion, although falling prices have reduced the market value to about $8 trillion. If all of those mortgages were quickly rewritten, the government would have to come up with $10 trillion. However, this plan will bring many more people into the housing market, so that when all is said and done we expect it could require as much as $14 trillion, which is no more than the current debt. And remember, this is not government spending, it is money used to make loans that will be paid back and that will soak up virtually all houses in foreclosure.
Where would the funds come from?
One answer is from the Federal Reserve that has been lending money to banks at 0% for the last few years. No one can say that past policies failed to help the financial industry. Now it is time for government to help the people first. If large banks can receive loans at 0%, why not mortgage loans for people at 1%.
A second chance
We first published this idea on December 9, 2008 when we paid for a full-page in USA TODAY. Since then, we have made some adjustments. At the time, we believed it was the best way to turn the economy around and avoid a long-lasting recession or a possible depression. Now, three years later, we believe it may be the only way to jump start the American economy, save homes, create jobs, and increase incomes. This is a win-win plan that puts the American people first. It is good for all Americans, including large and small businesses, government, and Wall Street.
Your opinion is very important.
Put your vote on the Remortgage America web site so that everyone—people, politicians, and the news media—can see what the people think of the plan. Whether you vote for it or against it, whether you have a positive or negative opinion, it is important that you post it. Even if you simply post a yes or no, it will help. If you would like to leave a comment, we will read what you have to say. It is also important for you to pass this plan on to friends and neighbors. Send e-mails to your friends in other states and tell them to come to the web site. They can then pass it on to others. And they can pass it on.
Contributor and spokesperson: Dennis F. Paulaha, Ph.D. Economics END
Please take time to read this – for yourself, your children, future generations and the future of the United States itself.
We need to act now. If we do not, we see another 5 or more years of slow economic growth. We see people getting poorer, money harder to come by, and a continued lowering of Americans’ standard of living.
We first published a version of this plan on December 9, 2008 in USA Today. It should have been acted on then. It it had, we believe that today:
The government and the Federal Reserve have done their best to divert a massive economic collapse with policies based on the belief that if the financial sector is allowed to fail, the economic fallout would be devastating. They have had some success; many big banks, investment firms, and corporations are doing better than ever.
But not all. And the housing industry, employment, and US manufacturing have yet to turn around. That is why we need a simple plan that will work. And we need it now, because we are running out of time.
It will increase credit availability and investment.
As existing mortgages are paid off with lower-rate government loans, the holders of those mortgages will have a cash inflow that will allow them to make new loans to people who, because of lower mortgage payments, will now be qualified to purchase other things on credit. Instead of a trickle down plan to stimulate the economy, this is a trickle up plan that moves funds into the financial system by starting with the people. We think this is a good idea, and we hope you will pass it on to your friends and neighbors.
Do the numbers add up?
The numbers do add up. This is not a “stimulus” check; it is a plan to end a long-lasting recession, prevent a possible depression, and change the structure of the US economy in a way that will promote growth and prosperity far into the future. It will also reduce the debt burden on future generations of Americans.
It is not inflationary.
This plan is less inflationary than any of the current plans. Under this plan, any increase in the money supply would not be “spent.” It would be used to finance new or existing mortgages, which means it would go through homeowners and directly into the financial system where it can be used to make new loans. It is an asset swap, where mortgage holders swap the mortgages they hold for cash. The increase in spending is from the monthly mortgage savings, which is enough to help the economy, but not enough to cause inflation. It would not be much different from what the government has done to increase the money supply during the past five years, so the results should be about the same.
Who gets bailed out?
This is not a bail-out plan. It is a plan to end the long recession, prevent a depression, and secure America’s future by changing the housing market.
Isn’t this just another way to give money to banks?
This is not a bail-out or hand-out for banks. Instead of giving money to banks, banks get money only when mortgages they hold are paid off. It will, however, help mortgage holders and avoid many short sales and foreclosures. But the main change is a change in bank assets—from risky and “underwater” mortgages to cash. Of course, the refinancing process may require banks to renegotiate the value of mortgages that are “underwater,” which many mortgage holders are already doing. Banks have two options: allow the government to pay off their underwater mortgages at fair market values or continue taking homes back and losing even more.
What about the payback?
The payback begins immediately, because the government will begin receiving interest immediately; then, in two years, interest plus principle payments on the loans.
Most important: We paid to published this idea for only one purpose: to offer a plan that can save the American economy as we now know it. That is why, as explained above, if any politician or any government official or anyone in the Federal Reserve or anyone in the media has a better plan, we are asking you to send it to us so we can post it on our web site for everyone to see.
Why is it not a normal increase in the money supply.
Under this plan, the increase in the money supply would not be “spent.” It would be used to finance new or existing mortgages, which means it would go through homeowners and directly into the financial system where it can be used to make new loans. It is an asset swap where mortgage holders swap the mortgages they hold for cash.
Why are price increases a good thing?
Falling prices are disastrous for a market economy. When everyone expects prices to fall, no one wants to spend money, unless it is absolutely necessary. They wisely wait for lower prices. The result is decreased sales, lower profits, cutbacks in production, and increasing unemployment, which leads to further decreases in spending. It is a downward spiral that, if not stopped, turns into a depression. That is why using an increase in the money supply to finance mortgages not only saves people’s homes and gives them more money to save or spend every month, it also reverses the negative impact of deflation.
How much will spending actually increase?
If interest rates on an average $180,000 mortgage ($200,000 house) fall from 4% to $1% (with homeowners paying only interest for two years), the savings are $8,512 a year for the first two years. But because homeowners have a smaller interest deduction when calculating income taxes, the real increase in after-tax income for the average homeowner will be about $7,176 per year. Assuming that 90% of that additional money will be spent, which means it becomes extra income to others who will spend 90% of their extra income, the total increase in all incomes as a result of each remortgaged home is ten times $7,176, or $71,760. Multiplied by 100 million homes, that is an increase in national income of $7.176 trillion a year. Assuming a 15% overall tax rate, which is the current percent of GDP going to taxes, there will be increase in federal income taxes of $1.08 trillion. The government also collects the interest paid on the mortgages, which is $.18 trillion, so the total increase in tax revenue is $1.26 trillion.
In the second year, the total increase in national income is $7.209 trillion. And the total increase in taxes (assuming taxes are 15% of GDP) is $1.08 trillion plus $.18, which is also $1.26 trillion.
In the third year (and beyond), homeowners will pay principal and interest at 1%. But because they paid only interest for two years, they have to pay off $280,000 in 28 years. If interest rates on an average $180,000 mortgage ($200,000 house) fall from 4% to $1% (with homeowners paying principal and interest), the savings are $2,944 a year for the next 28 years. But because homeowners have a smaller interest deduction when calculating income taxes, the real increase in after-tax income for the average homeowner will be about $1,668 in the third year. It will be a little more in each following year.
Again, assuming that 90% of that additional money will be spent, which means it becomes extra income to others who will spend 90% of their extra income, the total increase in all incomes as a result of each remortgaged home is ten times $1,668, or $16,680. Multiplied by 100 million homes, that is an increase in national income of $1.668 trillion a year. Assuming a 15% tax rate, there will be increase in federal income taxes of $250 billion. The government also collects the principal and interest paid on the mortgages, which is $738 billion, so the total increase in tax revenue is $763 billion. When corporate taxes are included, the government can collect as much as $1 trillion in additional taxes each year-year after year, which is certainly more effective than a one-time stimulus check.
At the same time, government spending on unemployment and other recession-based programs will decline because of the increase in employment.
Would the 1% mortgages be assumable?
Our opinion is that the 1% mortgages should be either assumable or “taken with” and applied to a new home. The choice would be up to the citizen who received the original 1% mortgage. One reason for the assumable option is that it would make houses with underwater mortgages marketable when compared with homes with market interest rates.
It will turn spending and credit availability into jobs.
With increased credit availability and more money being spent, companies will decrease layoffs and expand new job creation. Millions of jobs will be created in virtually every industry in America as millions of families have hundreds or thousands of dollars more to save or spend each month. As the economy improves and business expands, the banks will have the incentive and the funds available to make loans to business.
It will generate real economic growth.
Saving people’s homes while increasing consumer spending and solving the financial industry’s credit crunch will stimulate the economy, resulting in increased tax revenues and a reduction in the deficit.
If you have suggestions that can add to this plan, we would like to hear from you. One we heard was to limit interest deductions to interest paid on a $500,000 mortgage.