Here’s an idea to help the economy and homeowners at the same time, especially the underwater ones:
Streamline refinancing of any mortgage loan, regardless of type.
A streamline refinance generally refers to one that does not require credit or property qualifying, so in short, credit scores are not looked at, only payment history on the mortgage being refinanced, and an appraisal is not needed. Streamline refinances usually have to benefit the borrower by either a shorter term or at least a 5% reduction in payment.
Currently, only FHA and VA have streamline programs with FHA’s Streamline refinance and VA’s Interest Rate Reduction Refinance Loan or IRRRL.
But, what if we were to apply the same concept to all types of mortgage loans? Why would a bank balk at reducing a borrower’s payment by a couple hundred a month and thus strengthening their financial position and reducing the chance of default? Okay, well other than the investors who like the returns on that borrower’s higher interest rate. But in the grand scheme of things, isn’t it better to keep the home occupied and money flowing on that loan than to have it go into default and get 60 cents on the dollar in a foreclosure sale two years from now?
An added benefit would also be that freeing-up a couple of hundred dollars a month for a homeowner would give them some extra pocket cash which they may spend on going out to dinner, home improvement, a new TV, new furniture, etc.
In short, they’d spend it, and by spending it there would be an increased demand for products, production, employment, etc.
A good example of this is former President Bush’s tax credit. People got a mid-year refund check and it did create a momentary positive spike in sales and the economy. But unlike the one-time tax credit the benefits to a homeowner of a lower mortgage payment would create an on-going positive affect on the economy.
Just kind of thinking out loud here. Are you listening Washington?
Salt Lake City, UT