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Hickey proposes fixes for the housing market
Jim Hickey
Updated: July 19, 2012 4:48PM
Jim Hickey, Democratic candidate in the 11th Congressional District, says he has more experience than either of his opponents in housing issues since he has been a licensed mortgage originator and a licensed Realtor for over a decade.
“The stimulus and bailout did not work; and my opponent (Bill Foster) voted for stimulus,” Hickey said. “I would have never voted for the trickle-down stimulus package. Until all of the foreclosures are cleansed through the system, the market will not recover.”
Hickey’s plan has three steps: Federal Housing Administration guidelines, underwater homeowners and modifications.
“First of all, we need to reform FHA guidelines,” Hickey said.
He said change the holding period, noting millions of homeowners who faced a foreclosure, short sale or bankruptcy have to wait three or four years before they are allowed to purchase a home.
“I propose that if they have saved a down payment and can prove income with tax returns and paystubs, we should allow them to purchase foreclosed homes on the market, with no waiting period.
“We need to bring FHA back to pre-internet, pre-boom standards. This was when a person did not need a credit score to obtain a loan, but instead needed to be approved using strict income requirements to qualify. The thinking behind this is if a person can qualify for a loan using the 31 percent/43 percent ratios, the risk associated with the loan is low since 31 percent of the income is used for housing debt, and a total of 43 percent of income is used for housing and all other debts.
“Most conventional loans allowed borrowers to take out a loan without any income requirements (stated loans) or up to 60 percent of their income. Even today, many conventional lenders still allow up to 50 percent of income, meaning if a person makes $60,000 a year or $5,000 a month, some lenders will allow housing payment to be $2,500 ($5,000 x 50 percent). Under FHA strict guidelines, the housing payment could only be $1,550 ($5,000 x 31 percent); and total bills could be a maximum of $2,150 ($5,000 x 43 percent). This makes sense and we should continue it.”
Hickey said we also need to help the millions of homeowners who are underwater.
“Millions of homeowners are currently underwater, meaning they owe more money then the house currently appraises for,” Hickey said. “ Many of these homeowners have paid their mortgage payments on time, and cannot sell their home without having to spend a considerable amount of money out of their pocket.
“I propose that the banks lower the outstanding loan balance to the current appraised value at the current historic low-interest rates. This will cause hundreds of dollars a month in cash flow. For doing this, the bank and homeowner become 50/50 partners on future appreciation of the home above the new outstanding balance. The bank’s risk will be lowered since the homeowner’s payments will be lower. If the bank had to sell the property at a foreclosure sale, it would get much less then the appraised value. Plus, the banks will have a ‘silent lien’ on the property, so the debt will be paid back in the future. This will greatly help the economy recover.”
Hickey gave the example of a homeowner who owes $300,000 on a home that only appraises for $200,000. The monthly payment is only principal and interest, no taxes or insurance included:
Current situation: $300,000 loan, 6 percent interest, 30-year term = Monthly payment of $1,800
New situation: $200,000 loan, 3 percent interest, 30-year term = Monthly payment of $843
New monthly savings: $ 957
The savings, Hickey said, will help all Americans, regardless if they are Democrat, Republican, Independent or Tea Party. He said the government’s modification program is a joke.
“ I personally tried to modify my loans when my business closed down, and after sending and sending material, nothing ever happened,” Hickey said. “We need to eliminate the bank’s benefit to holding a home until foreclosure.
“We need to do the same for underwater homeowners, reduce principal, reduce interest to current historic lows, and create new mortgages on credit reports.
“Also, if the lower payments still do not work for the borrower, we could amortize the loan over 100 years, causing payments to be $526 a month ($200,000 loan, 3 percent) compared to $842 a month, 30-year fixed rate. This is 38 percent less of a payment, with nearly no principal being paid, but the family is able to remain living there,’and the housing market can recover.
“I have more information, as well as a video on this topic on my website, www.JimHickeyForAmerica.com. You might not agree with my solutions, but I am at least offering a solution to our problems. If you have a better idea, please let me know.”
