Everyone agrees that the first thing that needs to be done to start the corrective process in the economy and in the markets is to stem the tide of foreclosures nationwide. What the government can’t seem to do is figure out how to do this. One corrective action begets another corrective action and that in-turn has no effect other then to null the previous corrective action. This is driving the stock market nuts daily.

If you stop or reduce the flow of foreclosure filings nationwide, you will stop the panic, stabilize the housing and jobs market and credit will start to flow once again freely.

Look at the housing markets current collapse as a series of waves crashing into a house. One after another until that house cant stand anymore and collapses. If you can stop the waves, you will save the house. The goal is to put up a breaker to stop all the following waves that are about to hit that house.

The next wave of foreclosures are people that will bail on their house because they look at the depreciated value and say ” why would I pay $2000 a month for a house I paid $400,000 for when that exact same house is now selling for $250,000?, it will take me 30 years to pay it off and at that, it will be the worst investment of my life”  And there are the people who have that $400,000 house, are paying $8000 a year in taxes and the same exact house next door to them sells for $250,000 and those folks are paying $4000 a year for taxes. Those people CANT get a reduction in their taxes ( in Michigan not a deduction of more then 10% ) and those people will either bail or ‘buy and bail’. Which is buy another house while they still own the house they are in, then once the loan closes on the new house bail on the old house.

Everything is panic and fear. That is what essentially drives house prices. Panic to hurry and buy or panic to hurry up and sell. And fear that you are missing a good opportunity or fear that you are missing your ONLY opportunity.

You have to solve this problem by fixing it for EVERYONE, not just the folks who are 30-90 days into foreclosure. The people who have already lost their houses unfortunately will not benefit from this plan, but everyone else in the United States, who has a mortgage on their primary home, will.

With this simple plan you will STOP the next waves.

Now here is the solution. The Federal Reserve, The FDIC and the Treasury Department need to make one move. If, as a bank, you borrow any money from the ‘bank of last resort; ( ie: the government) then you as a bank must enact this plan.

For every person in the USA who has a 1st mortgage on their primary residence, their bank/lender/mortgage company must make these folks a one time offer.

For the next 60 days, there will be a window open. In that time frame, you can contact your lender and request that your loan be moved into what would be called the SafeHomes mortgage program. And that program consists of this.

40 year fixed loan ( regardless of the balance of your loan, value of your home, your income or anything) at 4.5% interest with a 30 day no-payment on your first installment if you sign up for the auto-withdraw feature where the mortgage payments come directly out of your checking or saving account.  This is a simple system change that can be done easily by any mortgage company or servicing agent.

For new home buyers, with 600 plus credit scores, Fanny and Freddie will do a 100% financed loan on any purchase up to $250,000, all the borrower has to pay is closing costs and pro-rated insurance and taxes.  Debt to income ratios of 38% or less, based on NET income, not gross and if they sign up for auto-withdraw from their checking or saving account for the monthly mortgage payment (including taxes and insurance) then their first month payment is waved.

Next, the IRS, with legislation or authority from the Federal government changes, for the next 5 years only, the deductible percentages on property tax on your primary residence on your tax returns. That change would make your property tax on your primary residence be at 100% of the amount you paid, not a percentage of that amount based on adjusted gross income as it is now. Again, this is regardless of income limitations. One size fits all.

And lastly, with regards to the auto-industry, if we are to save the auto industry as it is now, then we need to offer people an incentive to purchase vehicles now. So, for the next 60-90 days, any new car that a consumer purchases from a authorized and licensed US based car dealer that purchaser will receive a one time allowed tax reduction of up to 50% of the original purchase price of that car. The deduction must be taken with in the same year that the car was purchased.

There it is. And everyone in the real estate, title and lending business that I know, and that is a lot of people, all agree that this is what will fix the problem.

But instead of the government asking the people that actually know how to fix it, how to fix it; they are relying on former chairman of Goodman Sacs and mathematicians with no clear understanding of the marketplace and reality.

Every person in this business that I speak to has an idea on how to fix this mess. And each of their plans looks in some form or fashion just like my proposal above.

Forget about what got us here. That is no irrelevant. We now have to address the problem with a common sense approach coming from people who are in the trenches and know and understand the consumer and their concerns.

Jack Murphy                                                                                                                                                  Commentary

Jack Murphy is an independent real estate investment professional and author of “For Rent: Building our future through Investment Properties”. His commentaries represent his own opinions and not necessarily the views of any organization he may be affiliated with or those of the West Ranch Beacon.