The Jumblog

Okay, the Fed and Paulson make a big announcement tomorrow: For the next 90 days, all mortgages for owner occupied home purchases will receive a 2% point discount on their loan. Buyers with a 6% mortgage can lock in at 4% but only if they purchase before the end of February.

It’s a no brainer, and here is why…

I am out there every day speaking to my buyers, hearing their comments and concerns. Buyers with 800 credit scores and 20% down are still on the fence; they think the market will go lower (mostly from misrepresentations from the national news even though real estate is extremely local). They are scared, they need something to help them take the plunge, a little push to get in the game and help purchase a place to live, and also help the market by taking the excess inventory down and stabilize the downward spiral.

Boom – the house they are in love with and have been watching for the last two months—it just got much better on paper at 4.5% than the 6.5% that ABC mortgage just quoted them!! They take the plunge, and actually have a mortgage they can afford and not have the house own them.

Start the Avalanche!

Inventory goes down…

Tax revenue is seen for municipalities that desperately need it…

Stats start changing and the news actually announces positive sales figures…

The word spreads and more buyers come off the sidelines and get into the game…

And more inventory is taken off the market, easing the burden of the over-populated listings…

And more tax revenue flows into local and state governments that need it badly…

And more good stats are reported in the news…

Yada, yada, yada…

The Fed and Congress should get out from behind their desks, talk to the people in the trenches (to verify that I am not off my rocker), and then get this policy in place now. No break for the holidays, no weekends, do not pass go, do not collect $200; remember, this is the biggest financial crisis of the last 50 years so we need to act. What better place to act but where every single economist and scholar says the problem originated - in the real estate industry.

The discount window is open, the banks and the Fed work out a deal where both get a little less on their return; but they get the market jump started and also take some of the non-performing assets off the books of the lending institutions (which is what the TARP was supposed to do in the first place).

I am pleading with you Mr. Congressman and Mr. Senator and even Mr. President-Elect; get a program like this in place now!! It does not have to be permanent; 90 days is plenty of time to get these buyers off the fence and get some inventory sold!! If it works, you extend it for another 60 days and ease the market into the spring, which is annually one of the best sales periods for real estate.

Give buyers the green light to purchase now!!

No one takes a hit and everyone gains. The Fed is willing to do anything to help, cut your end by 1% point. The banks are not lending anyway so their revenue is way down, cut your end by 1% point and get some cash flowing. And best of all it will work to unfreeze the credit market altogether!

What happens at a store when there is excess inventory? They have a sale and get rid of it. The sale is already going on in the marketplace for real estate, and housing prices have returned to their pre-bubble pricing levels already. It’s Kmart out there and the blue light is on!

But the buyers are scared, they need some incentive to get off the sidelines and help bring this country back from the brink. I am out there in the street every day and the buyers are there, and they want to buy; but the market instability is keeping them from making the move.

This would have been a better use for the TARP funds anyway, but that ship has sailed.

(And by the way, if you had asked any Realtor® or lender about the initial strategy of buying up the bad mortgages – we could have told you on the spot that it was never, ever going to happen. It’s like taking a plate of spaghetti and meatballs into the dining room table, and giving each person in your family a portion on their plate; and then watching them eat ¼ of their portion. Then you ask the cook to retrieve the original ingredients and place them back in their packages; pasta, beef, sauce, cheese, spices, etc… They have already been cut up into so many pieces, and mixed together and passed out; there is no way to put them back in the original condition to even be quantified!!)

Although the “speed to cure” argument Mr. Paulson mentioned has merit, it was never going to happen anyway.

But a mortgage sale for a short period of time can and WILL work. It gets all of the buyers off the fence immediately, and also brings new ones into the stadium to watch the game. (Do not relax the standards like previously done; buyers still have to actually have a job, and actually have financials to back up the purchase, and actually have the ability to repay the loan) This solution will help clean out the over flowing inventory, which in turn provides more transactions and more revenue for everyone involved.

The biggest problem with this approach is its simplicity, ease, and effectiveness. Unfortunately, our Government likes big and complex solutions, that take years to solve; and give them the ability to create a new department and be heavily involved in micro-managing the solution. (There are a few of our representatives out there who do not subscribe to this method of Government problem solving, but they are a small minority and shrinking every day)

This solution keeps the Government out of the way of the market forces that will help correct the problem! Their only involvement is the work out of the Fed to lender discount %’s, and then they get out of the way and let the market take over. Just think about it: you are standing in the store admiring a beautiful piece of jewelry for that special someone, but $100 is way above your budget. You’re not even sure if the diamond is a good one or not. The jeweler takes it out and you have a look, and it looks better. And now the salesman says he will sell it to you for $60. Boom - your wallet is coming out, and you are getting what you want for a better price, and the seller is moving his inventory, and the state is getting their sales tax, yada, yada, yada…

Now that you know the solution, everyone email this blog to your Senator and Congressman, and we can be back on the right track before the holidays!!!!