muley101

The Facts Behind the Coming Congressional Mortgage Bailout Bill

Plan B: The Mortgage Investment Bill
for Reviving the Economy

by Stan Muse

The Federal Reserve is out of Federal Funds rate options and now the Congress is about to pass legislation which will be the largest bailout bill in the history of the world. Fannie Mae and Freddie Mac are now penny stocks with perhaps over 1000 bank failures yet to come. The American taxpayer will be told that they and their children will be writing big checks to rescue the Wall Street crooks and congressmen that caused all the problems, while receiving nothing in return.

Anyone who has been following recent congressional hearings knows by now that this is unacceptable to Main Street, the voters who will be firing their congressmen for turning the USA into a socialist country. It is also widely believed that this bailout bill may not be embraced by Wall Street because of its onerous terms even if passed. Finally, it will not provide sufficient liquidity for improving the rest of the economy.

A much more effective and fairer way to end our economic crisis is easily attainable. To state it simply, all Congress has to do is to pass a Mortgage Investment bill which allows individuals a one-time option to use some of the funds in their IRAs to pay off their mortgage balance in full, without any penalty, interest, or taxes for doing so. In return, individuals choosing to exercise this option give up their mortgage interest tax deduction for life. This bill could be passed quickly and independently of any other economy-related legislation currently being debated, or included in the current bill. Individuals choosing this option would need sufficient IRA funds to pay mortgage balance in full. The actual payment to the individual’s mortgage company would be done by the IRA managing institution to avoid fraud.

As one senator recently stated, ‘for most people their home is their IRA’. For many others, their 401-K plans hold many trillions of dollars, much of which by now is parked in money market funds or T-bills as mine is. If these IRA funds could be released to pay off mortgages, we could possibly avert, or at least significantly shorten, the economic recession we now find ourselves in. In fact, no other bailout legislation may even be necessary, although more regulatory legislation is certainly needed.

I asked Allan Meltzer, Arthur Segel, and Ellen Zentner to review this proposal and received some positive responses. Ellen said it seemed to be fool-proof and better than a reverse mortgage. In fact, it is a no-brainer for the homeowner with a large 401-K balance, and for the government. The only people who might object, as Ellen stated, are the bankers who want to keep homeowners dependant on them, especially those in the upper-income group. But even the bankers can not want the government to own a large stake in their business for a multitude of reasons.

It makes sense to allow people to use their IRA money, which they earned, to invest in the best and safest investment they could ever make, their home. Presumably they will need a place to live in retirement on a fixed income. It makes no sense for someone with more than enough IRA funds to cover their mortgage balance to loose their home because they lost their job and can not pay their mortgage. It also makes sense because it is not some form of government bailout which rewards the bad behavior of mortgage companies and unqualified borrowers. Instead, it rewards the good behavior of those who have saved and invested in the economy

If only 5 million people chose this option, for an average of only $200,000 each, the result would be $1 Trillion in paid-off mortgages, providing liquidity to the mortgage industry. By executing the option, an individual’s annual mortgage payment would become disposable income to put back into the economy or back into IRA accounts. To the individual, the effect is the same as lowering taxes. If only 5 Million people were able to put back $20,000 per year into the economy, the result would be a $100 Billion per year stimulus package for many years to come.

In my case, with $800K in IRAs and a secure pension, I would increase disposable income by $1600 per month while reducing the IRA balance by only $160K, but saving over $120K in future interest payments. I could retire, which I can not afford to now, and leave my six figure job to someone else. I could also quickly replenish the IRA money used to pay off my mortgage with the extra income.

Adding a further provision to delay receiving Social Security payments for a year in order to exercise the option would be a baby step towards privatization of Social Security. Anyone financially able to exercise the option should be able to delay the payments. For every 5 million people choosing the option, approximately $100 Billion would remain in the Social Security fund. This could fix our problems with Social Security for good.

Some of the benefits of this plan would be to:

• Immediately increase an individual’s or married couple’s disposable income by tens of thousands of dollars each year while enabling them to become debt free, helping families to stay together
• Save homeowners hundreds of thousands of dollars in mortgage interest payments
• Encourage individual IRA savings by many who have never saved
• Allow many people to retire earlier than they otherwise could
• Create demand for housing, reducing inventory, and stopping the decline in home prices
• Stimulate the overall economy, creating and saving jobs
• Not cost the government anything, and actually Increase federal, state, and local tax revenues by eliminating individual mortgage interest tax deductions, without raising tax rates
• Force the banks to sell their good loan assets to cover their bad loan losses, instead of forcing the taxpayer to buy their worst loans, and increase liquidity for new loans to those who need them
• Allow the free market economy to work through the crisis rather than resorting to socialism
• Not increase the national debt nor the money supply as a bailout would do and contribute to inflation
• Allow the individual home owner to the freedom to become their own banker with the money they earn, reducing America’s dependence on bankers, and changing America from renters and borrowers to homeowners and savers


The merits of this simple plan, the Mortgage Investment bill, for saving the economy, instead of trillions of dollars for a Wall Street bailout which will socialize the finance industry, are obvious and would benefit everyone involved. The individual gets more disposable income and a chance to live debt free, the capital markets get needed liquidity, the government collects more taxes and collects them sooner at the expense of the bankers, the housing market gets more demand, and the general economy gets a much needed boost for the next few years.

Democrats should like this plan because they can claim that it lets the wealthy pay for this mess. Republicans should like it because it increases disposable income, which has the same effect the same lowering taxes. The average voter should like it because it addresses all segments of the economy with a huge economic stimulus package, not just Wall Street, and costs nothing while helping to pay off the national debt and potentially fixing Social Security.

Is the U.S. Banking System Safe?

Great Article. It looks like the ultimate perfect storm. Just a few obstacles to overcome and we're in the clear:

1) Banking Crisis Growing, will be here for at least a decade
2) Soaring Price of Oil - Boone says largest transfer of wealth ever
3) Global Warming - food crisis looming, more national weather disasters to come, no more trailers from FEMA
4) Deflation in housing/Inflation in everything else
5) No Liquidity for new loans to drive the economy
6) 8 years of a fool for a President - America's reputation tarnished
7) Soaring National Debt
8) Never-ending War
9) Soaring Health Care costs
10) Iran, N.Korea going 'NUKULARE'

Other than that everything os A-OK

SEC Shorting Restrictions: Are Some Banks Being Set Up?

Thanks for this article. Now I know why my usual day trading strategy for WM was not working today. They were not moving with the rest of the pack as indicated by the RKH and XLF ETFs.

Writedowns and Capital Raised by Financial Firms

Yep, I'd like to see a comparison of C and WM showing total loan portfolio vs % of writedowns. WM should have the same or more bad loans as C as a % of total, especially since most of their loans are on the west coast and Florida. It that is true then there is no way they can survive and their recent statements regarding sufficient liquidity should send their board to jail.

New Lender Guidelines To Help Struggling Homeowners

How can Senators Dodd and Shelby possibly survive their next election ? These two morons have been asleep at the wheel for years. They are to balme as much as any of the incopetent CFOs that have been fired from the finace industry. Someone should write an article on their complicity with the mortgage crisis.

Will the Banks Rebound? Cramer's Mad Money (5/30/08)

Yeah, about 9 months ago Cramer said "It's time to ring the register on oil". So I did. Thanks Cramer.

Saving the Economy with IRA Funds

bearfund, you need to do lunch with Suzie Orman or Dave ramsey. What has been described is an interest free loan secured by your house in your IRA. You would be able to pay the money back to your IRA, and pay off your house in less than half the time, with what you would normally pay the bank each month and save hundreds of thousands in interest payments.

Saving the Economy with IRA Funds

Well, from the comments so far we have to conclude that some people:

1) do not like money, and prefer to send it to mortgage companies rather than spend it themselves
2) believe they scanned themselves when they bought their home, or prefer to rent, because it is a bad investment
3) need government restrictions to keep them from scamming themselves in the future. The do not realize that they can already borrow against IRA funds, invest in REITs, AND can invest in specific parcels of real estate using companies like First IRA Mortgage, just not their own home because of the IRS rule.
4) believe that their own IRA funds manager is out to scam them (why do they not find another?)
5) do not think that there is a time value of money, they would rather be able to use their IRA funds later rather than sooner.
5) prefer government bailouts, like the one Congress just passed which rewards bad behavior, over the free market since this would be a free decision on the part of the homeowner
6) do not believe that the best investment one can make is in owning a home because they do not realize that it appreciates AND saves them living expenses over any other investments they may choose
6) believe that owning a home free and clear would be terrible
7) lack reading comprehention skills

Now, Let's have some intelligent comments like btr0037.