The only way the economy can be naturally stimulated in a sustainable way is through the manufacturing and sale of goods and services. Period.
Sales is and always will be the driving force of any economy. Without sales in an economy, just like in business, you go bankrupt. The solution is to get people buying goods and services which in turn creates jobs where people earn money to buy more goods and services. This is the economic cycle.
The solution is not to throw billions at banks who are now hording the cash for a rainy day.
The driving factor for the American economy is housing. The number of industries impacted by housing is astronomical. Lumber, concrete, steel, aluminum, plastic, petroleum, vehicles (all those trucks builders need that each contain 15,000 or more individual parts), retail stores (Home Depot, Target, Wal-Mart, etc.), banks, investments, dirt (yes, dirt), glass, insurance, pest control, landscaping, attorneys, paper, advertising, web sites, programmers, IT support people, government employees (permits, inspections, city councils)………I could go on all day. Hopefully, you get the picture. There is no industry that is not impacted by housing because every industry is here to support people. People who need a place to live. People who need a job to make money.
That being said, one way to help stimulate the economy and not cost the tax payers a dime is to reinstitute the down payment assistance program for FHA insured loans. In October of 2008, the great G.W. in his infinite wisdom, signed a bill into law that eliminated an entire industry devoted to helping people attain the dream of home ownership without depleting every last capital resource they had. For federally insured FHA loans for the first time ever, a minimum credit score of 580 was required (it has now been raised to 600 by many lenders) the required down payment was increased to 3.5% and the ability to obtain down payment assistance was eliminated. The biggest question that no one has answered is why? Perhaps a bigger question was how was this supposed to help an already struggling housing market and economy? After all, the real problem was supposed to be subprime loans, not FHA loans. FHA loans aren’t the media described “toxic” loans. They are the plain old vanilla loans that have been around for decades.
The down payment assistance program had many different names depending on which company was being utilized but the most popular was The Nehemiah Program. Utilizing The Nehemiah Program, a buyer could basically legally “borrow” their down payment. While on the surface this may seem like a bad idea, in practice, it is much better to leave a buyer with liquid capital resources than to bury every last dollar in equity in a home to “protect” the lender.
There is now a bill on the table to essentially reverse the bill prohibiting down payment assistance, H.R. 600.
What is the potential impact?
Take a look at these alarming statistics:
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Reinstating DPA could help ensure continued liquidity in the stagnating housing market by providing aid to an estimated 600,000 working-class people for home purchases this year, generating $150 billion in home sales. That’s $150 Billion with a B.
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Every 50 seconds one homebuyer is denied access to homeownership due to the elimination of down payment assistance (DPA) on October 1, 2008
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A report issued by the Congressional Budget Office (CBO) confirms that H.R. 600 would not cost the federal government or taxpayers any money. In fact, the Congressional Budget Office estimates that seller-financed DPA will generate $65 million over the next five years and save taxpayers $13 million next year.
While in years past, many of you would have never personally gotten an FHA mortgage, there is little left in the mortgage markets. Ask any lender. The current FHA loan limit for most of metro Atlanta is $346,250.
While I am never for governmental intervention into the capital markets, I am in this case because it serves to reverse prior governmental intervention that has only hurt our economy.
I am personally supporting H.R. 600 and implore you to do the same.
Do it for yourself (you may need it one day).
