Stop and Reverse the Real Estate and Mortgage Crises

This is a well know fact that when Treasury bonds prices are going up and the yields of this Treasury bonds are going down the long term mortgage fixed rate is going down as well. Let me explain why this is happen. It is not a secret (and specially now) that Fannie Mae and Freddie Mac are publicly traded and Government subsidized secondary market mortgages buying companies. Freddie and Fannie provide banks with fresh money to make new loans at affordable rates by buying billions of dollars of mortgages each month from approved lenders that do residential mortgages. Some of these mortgages are sold to investors as mortgage-backed securities (MBS); others are kept by the companies as investments. MBS are consist of groups of seasoned mortgages and are sold to investors at the discount prices. One of the major factors of the MBS discount is depending on the money surplus which is in turn depending on sale of the Treasury bonds. In simple the more money the Feds get from the sale of Treasury bonds the more money they would have available to lower the mortgage rate. So now we understand that we have to increase the prices and decrease the yields of Treasury bonds. The following is the most important part of my plan that will take us out from crises and will bring us back to the Real Estate and economical boom for that matter.

God Blass America! I don't know any other country in the world that has an income tax privilege as IRA. We all know that if we put $2,000 to IRA account we can deduct this amount from our income tax. My idea is simple: Let the Feds issue a new rule to provide the same tax privilege to Treasury bonds buyers. In other words if an individual buys let's say $2,000 worth of Treasury bonds s/he can deduct this amount from the income tax (this could be in addition to IRA or instead of IRA). Providing that the Treasury bonds will have the same tax benefits as they have right now I am sure these Treasury bonds will become in a big demand, driving their prices up and up. So let's see again: The prices of Treasury bonds will go up; the yield of the Treasury bonds will go down, driving long term mortgages fixed rate down. We need to bring a 30 year fixed rate mortgage to a 3% interest!!! Just imagine what this kind of mortgage interest will do to the Real Estate and mortgage industry. Most of the home owners will refinance their mortgages. I suggest that people with poor credit still would be able to get lower rate, let's say one percent higher than people with good credit. I also suggest that sub-prime mortgages will be modified to conventional mortgages with PMI (private mortgage insurance) rules apply. If some houses won't have enough equity for conventional refinancing it will be just a matter of time. With this kind of mortgage rates it shouldn't take too long to get the value of these houses up. I think that families that had caught by sub-prime mortgage scams and cannot afford to pay the mortgages should get a break anyway by getting low interest mortgages but they would have to sign a Confection of Judgment to release lenders from foreclosure agony.

Besides homeowners the rest of our economy shall benefit too. The investors of Mortgage Back Securities with portfolio of non-performance mortgages will get their money back to reinvest. Real Estate market will get back to its normal activity. Home owners will have more money to spend. Banks will start making money and offering other loans again. Businesses will get the money to increase their activities offering more jobs and more goods. The whole economy will revive reaching to the new higher level.

As anything else in this world there is a couch: The investors (corporations, pension funds, etc) are going to make less money. I have two words for them: Tough luck. So they buy at the bigger discount, it's still better than Blue Chips (now we know how save they are) or a non-performance mortgages. Besides it's time for us the hard working American people to get some break we deserve it don't we?

By: Boris Revzin

ABC Funding LLC