So, what benefits should be we see as a result of my proposal?
1) The residential real estate market should immediately stabalize. Homes would become much more affordable. My understanding is that there are still many Alt-A loans with payments due to increase dramatically. As that happens, more people will be walking away from their homes meaning more empty homes on the market and more bad paper out in the investment world. I'm not saying my proposal will save everyone who still has an ARM due to reset, but it will do more than anything that has been put in place so far. As proposed in my last blog, very low interest rates could be used to save as many loans due-to-go-bad as possible and to make the existing market more affordable for lower income people. A six month window could be used as an incentive to get people back into the market. As the existing inventory declines and the economy improves, interest rates could be adjusted so that the market doesn't overheat.
2) With lower 30-year fixed-rate loans available, people with lower incomes will be able to afford homes. People will see the value of home ownership as inventory declines and prices begin to rise again. People considering walking away from their homes now could take advantage of the program and reverse the trend of falling real estate values.
3) Millions of homeowners who can convert to lower interest rate loans could save hundreds of dollars month after month. THIS is the bailout which will help get the middle class out of debt and ultimately provide the stimulus which will create jobs.
4) The same homeowners who save hundreds of dollars monthly due to lower interest rates will also have lower home interest deductions on their 1040 schedule A's. Tax revenues will therefore increase at a time when they are desperately needed, WITHOUT raising tax rates. The ulimate win-win situation.
5) As the economy picks up, so do revenues at all levels of government. Hate to think of what will happen if this recession lasts much longer.