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The Muthart Plan: Ultimate 4 percent mortgage solution

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POSTED April 9, 2009 4:02 a.m.
It’s too bad President Obama didn’t pick Jim Muthart as the architect of his stimulus plan to get the economy rolling again instead of Tim Geithner.

The Manteca resident’s plan is simple and to the point.

Instead of the federal government dumping billions here and there on Wall Street and tossing around tax credits that are available essentially to some buyers and not others because of timing, it steps in and helps roll back all home mortgage loans – existing and those yet to be made – to a flat 4 percent.

Everyone with an existing primary loan - that excludes any debt that was not for the sole purpose of buying a home – gets the rate rolled back to 4 percent fixed rate loan. It doesn’t matter whether you are taking out a 30-year loan, have three years to go, or have 29 years and nine months left. Everything is rolled back to 4 percent.

“Can you imagine what it would be like to put a hundred or more dollars back into the hands of a household each month?” Muthart asked.

It is simple and brilliant.

Responsible borrowers are given a break.

Those who got into the creative loans would have a rate they should be able to manage. And if they can’t at 4 percent, then Muthart is right in that they had no business buying the home that they’re in.

It doesn’t reward those who made the decision to encumber their homes with credit line debt for toys and such.

It can get renters into homes easier as a 4 percent loan on a $120,000 mortgage has an all inclusive monthly cost of around $700 – insurance and taxes included – which is less than a two-bedroom apartment in Manteca.

It also wouldn’t be restricted just to one income strata. Anyone who qualifies for a loan or has an existing loan they are current on gets their rate reduced to 4 percent.

The banks could be made whole if the Muthart Plan is implemented with outright tax credits for the dollar amount they would lose over the years at the reduced rate while at the same time would not have to worry about anyone artificially reducing the principal owed.

If the end result was an average of $100 a month back into the pockets of someone with a mortgage that would come to $1,200 a year, that would more than offset increased taxes. They could then use the money left over each month to pay off debt, save or spend.

If they pay off debt they help the banks by replacing capital that they can loan again.
If they park it in a savings account, they give the bank demand deposits that have a multiplier applied to them to allow other money to be loaned out.

If they buy stock for long-term investment, they can help shore up the markets,

If they spend it, they get retail sales going which in turn generates jobs.

The long range debt impact of the bailout would essentially give banks and mortgage holder probably enough tax credits to avoid paying taxes on profits for a couple of decades.

Given the fact most of the money ultimately would make its way back to the bank either through debt payment, savings or commercial accounts of retailers it should provide a cushion to replace the interest loss with rates rolled back on home mortgages to 4 percent.

True, the federal government would have to promise to “shore up” banks in the event revenues plummeted too much initially while the financial institutions were waiting for the economy to rebound after  4 percent rates were put in place.

Given all of the shoring up we’re doing right now that obviously isn’t working, it seems the Muthart Plan would have a much smaller risk to the taxpayers plus it would generate tax receipts to help government by increasing monthly spending.

Economists pooh-pooh the rebate stimulus plans of $600 per taxpayer of being too small to make much of an impact. That is because it is only $600 once every 10 or so years whenever the President and Congress try to make political hay with a rebate program. This way it could easily be $100 a month until mortgages are paid off which then means households would have even more money to go toward spending, saving, and retirement.

It also would increase state and federal tax receipts because dropping existing mortgages to 4 percent would in turn reduce tax deductions across the board for those who itemize mortgage interest.

The program at the same time with 4 percent interest rates is an effective tool to lure renters into purchasing the ever swelling foreclosure housing stock.

Anyone want to replace Geithner with Muthart as Treasury Secretary?
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