Invest in America (INVA) “Economic Stimulus Written by the American Taxpayer for the American Taxpayer”
The INVA strategy is not a temporary bailout for Wall Street; it is a practical strategy for Main Street that provides a fundamental solution to the underlying problem. The INVA Strategy targets the heart of the current economic crisis - by stabilizing housing prices and providing direct stimulus to the American consumer. This plan focuses on the fundamental cause of the housing crisis (falling housing prices coupled with defaulting home owners). In turn, this plan will save the financial institutions currently owning mortgage-backed securities. Until housing prices stabilize, this economic crisis will continue. Financial institutions’ balance sheets will continue to weaken, causing them to fail. Before the US attains economic recovery, housing must become more affordable for the average American family.
This can be achieved in one of two ways:
1. Lower housing prices (i.e., the amount of dollars paid per house) or, 2. Make the money borrowed to buy a home less expensive to the borrower (i.e., lower interest rates on the homeowner’s mortgage)
The second option is superior because it causes far less destruction to both the consumer’s, as well as the financial institution’s, balance sheet. The effect of lower rates to the consumer would, in essence, increase cash flow for financially strapped homeowners. Furthermore, lower monthly mortgage payments will produce a recurring economic stimulus and alleviate financial burdens carried by the average American homeowner.
I. Implementation and Exit Strategy • INVA will offer to the public a 3.75% interest rate on a 30-year mortgage or 3.5% on a 15-year mortgage (these rates are figured by adding approximately 1.25% to the 10 year Treasury and 1% to the 30 year respectively), thus rates are subject to change based on market conditions • $75 billion of TARP will be allocated to pay closing costs associated with the INVA home loan for the first 15 million loans ($5K per loan) • Traditional underwriting for conforming loans • INVA bonds in 10-, 15- and 30-year maturities will be issued to fund the INVA mortgage loan program. It would reside under the Treasury’s authority and reserve the explicit guarantee of the Treasury • INVA bonds are non-taxable at both the state and federal levels and are not subject to the Alternative Minimum Tax (AMT) • INVA bonds are highly marketable due to their tax-exempt status (federal and state) and explicit guarantees of the US Government • The INVA home loan underwriting and issuing of bonds to fund the program is proposed for one year. The proposal’s vision and ultimate goal is to provide a clear entry and exit strategy. The intent is not to create more or larger government; it is to provide direct, significant, ongoing economic stimulus to the average American taxpayer • The INVA program will end with the maturity of the 30 year INVA bonds
II. Qualification • Any American taxpayer who has two years of tax returns and a triple-merge credit score with the middle score of 620 or greater • The loan underwriting process should be uniform and as simplistic as possible. This process would be INVA directed and followed by all INVA approved lending institutions. Debt-to-income ratios should not exceed 45%, enabling participants with sufficient capacity to purchase the excess supply of real estate currently on the market • No jumbo loans over $417K • Refinancing is available, but only up to the total amount of existing debt • If the homeowner is “upside down” on his mortgage (i.e., he owes more on the 1st mortgage or combination of 1st and 2nd mortgages than the home’s current appraisal), he can refinance at an amount that is ½ the gap in between the property appraisal value and the total amount owed. The second mortgage payoff should receive equal percentage allocation on the payoff of the loan, if one is attached to the property Example: If property is worth 80% ($80,000.00 appraised value) of the outstanding loan amount $100K, and the homeowner has $80K on a 1st mortgage and $20K on a 2nd mortgage, then the amount of the INVA loan made to the homeowner would be $90,000.00, i.e., ½ the gap between the appraised value and the loan amount. $72,000.00 (90% of the 1st mortgage) would go to pay down the 1st Mortgage and $18,000.00 (90% of the 2nd mortgage) would go to pay down the 2nd. • Banks and owners of mortgage-backed securities affected by this financing will receive tax credits in amounts that would completely recoup all principle losses incurred through the INVA refinancing • Only primary residence mortgages will be underwritten for the first nine months; additional properties can only be underwritten in the last three months of the one-year INVA program
III. Accountability • Since this loan will be 100% government backed by an explicit guarantee, the IRS or other appropriate agency can and will be summoned to collect funds if default occurs • If default occurs, the borrower will be made to pay back all closing costs, as well as any losses incurred by INVA associated with the default • If there is missing or incomplete documentation or a loan is made to an individual who does not qualify, a fine of up to $20K dollars per occurrence can be placed on the financial institution facilitating the loan. Up to one year in jail and an additional fine of $10K can be imposed on the originator per occurrence if he or she knowingly misrepresents the borrower • If the borrower knowingly misrepresents himself/herself, he or she may receive up to one year in jail, a $10K fine, and responsible for reimbursing all closing costs/losses by the program • There will be a list of approved appraisers, and if an appraiser is found guilty of knowingly misrepresenting a property’s value, a $20K fine per occurrence will be implemented along with up to one year in jail
IV. Savings to the average American Family We believe that the average American family with a $200K mortgage would save approximately $338 per month. As an example, the payment on a $200K mortgage at 6.5% would be $1,264 and the same loan amount at 3.75% would be $926 per month. THE MONTHLY SAVINGS FOR THE AVERAGE FAMILY WOULD BE ROUGHLY $338 PER MONTH OR APPROXIMATELY $121,000 OVER THE LIFE OF THE LOAN. This calculation does not take into account the amount saved on Private Mortgage Insurance (PMI) when applicable (in most cases the savings will be even greater).
V. The INVA Economic Thesis This extra $338 would go directly into either the US economy or would be used to strengthen the homeowner’s financial condition. This strategy would not be another temporary Band-Aid that does not address the underlying fundamentals. The solution is a long-lasting approach that will help the overall economy while having a direct benefit to the consumer. Thus, stimulus to the economy would be ongoing and benefits would transfer over into companies’ revenues.
We believe as the cost of money goes down (i.e., the low interest rates) via INVA mortgage loans, demand for housing will rebound dramatically. This limited once-in-a-lifetime, rock bottom interest rate - coupled with subsidized closing costs - will work in tandem with already substantially lower real estate prices to create sensational demand.
We believe this plan will stop the downward spiral of home prices, helping to establish a housing price floor and creating demand, thus providing ongoing stimulus to the economy. This action would assist the American consumer directly without instituting a one-time “check in the mail” approach. Since the American consumer is 2/3rd of the US economy, what better way to stimulate the economy than to help the consumer? If the “Invest in America” plan is adopted, we believe that there will be no need to spend additional tax-payer funds on a separate stimulus package.
INVA Contributors Written by: Richard Raff, RIA & Series 7 Licensed Co-written by: Walt Bowie, MBA & Series 7 Licensed Lead Consultant: Gary Morgan, MBA, RIA & Series 7 Licensed Mortgage Consultant: BJ Doty, Mortgage Loan Officer
To find out how you can make your contribution and “Invest In America,” please contact our team today at INVA2009@gmail.com