How About a Homebuyer Mulligan?

The story is part urban legend, part sports folklore.  David Mulligan was driving to the golf course one crisp, early morning when he nearly crashed his car after crossing a rough bridge.  His nerves were understandably frayed by the time he reached the clubhouse.  As he gripped his driver at the first tee box the events from earlier that morning flashed through his mind and he shanked his golf shot into the woods. 

David’s friends, a very forgiving bunch, took pity and gave him another shot without a penalty.  The rest is sports history.  The “do-over” shot, more popularly known now as the ‘Mulligan’, became a part of the golf glossary forever.  As a matter of fact, the term ‘Mulligan’ has transcended golf.  You can now hear it used in other sports and life situations whenever someone needs a do-over.

The median home price in Phoenix dropped 2.26% from June to July and sales are down 26% from this time last year, according to Tom Ruff of the Information Market. Much has been written lately by economists, analysts, pundits, politicians, columnists and bloggers about what can be done to turn this housing market around.  It appears as though the homebuyer tax credit has done more harm than good.  It artificially boosted prices and now that it is gone sales are plummeting faster than my golf handicap after a few cold ones at the turn (for you non-golfers that means my game falls apart after I have a few beers between the 9th and 10th holes.)

Last week, the Treasury department held a Future of Housing Finance conference to discuss this issue.  Bill Gross, who runs PIMCO, the world’s largest bond fund, was there and advocated that all government backed loans over 5.75% (Fannie Mae, Freddie Mac, FHA) be readjusted to today’s interest rate.  This plan, according to Gross, would provide much needed stimulus and boost home values by 5-10%.  Sounds like a good idea right?  Unless, of course, you are a bond investor.  They argue that’s robbing Peter to pay Paul.

No one invited me to this conference.  I recently moved so it may be because they didn’t have my new address.  But, I’m not that hard to find so I can only conclude that they could care less about what I think.  Nevertheless, I’m going to submit my opinion here and hope this gets passed on to the powers that be.

I know a doctor, attorney, physical therapist, social worker, church pastor and engineer who are all upside down on their mortgages and are going through short sales.  These are responsible, educated, hard-working people that, besides the mortgage on their primary residences, are current with all other payments.  They have good incomes, cash reserves and assets.  Their only mistake was buying a home at the absolute worst time in American history.  These people deserve a do-over, a homebuyer Mulligan.

Banks should loosen up their lending criteria and lend money to people who:

  1. Have just one blemish on their credit report (i.e. a short sale or foreclosure).
  2. Have an income greater than 3 times their mortgage payment.
  3. Have at least 20% to put down.

The banks wouldn’t even have to offer rock bottom interest rates.  I’m fairly certain they could get at least 3-4% above prime for a loan product like this.  It would allow hundreds of thousands of Americans to become homeowners again and increase demand at every price point.  There would be dancing in the streets and I would finally get invited to the big Treasury department meetings.

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Filed under Finance, Homeownership

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