One of the most important, albeit over looked segments of our economy are homeowners who are current on their mortgage, and haven’t missed a single payment or been late. These people have good credit score, a history of making their payments on time and other assets. These assets may be held in other forms of investments; however they may not be easily convertible into cash.

This group of people has mortgages that may either be fixed or variable and at rates of 6% or higher. The problems may be in the form of a couple of things:

1. The current value of their home may have fallen to where the current value happens to also be what the outstanding mortgage balance is, therefore prohibiting a refinance due to the debt/equity ratio.
2. Today’s stricter financing regulations may prohibit someone from meeting the new guidelines, since lenders today have recoiled with a knee jerk reaction which has kept many qualified people out of the housing market.

“Is it possible the banks are punishing their best customers in an attempt to recoup the shortfall of their past indiscretions and lax oversight?”

The basis of lending money has always been to factor into the cost of the money the amount of risk that was associated with the borrower. Except for the previous few years when now we are finding out that in exchange for 100% financing, no doc loans and all of the other mortgage opportunities, lenders did not factor in a high enough degree of risk for the loans they made. Risk which is typically expressed as a higher interest rate or upfront points. If these tools would have been used effectively, many people wouldn’t have been able to qualify for a mortgage and consequently would not have gone into default.

If this group of property owners were allowed to refinance at today’s lower more competitive rates, a homeowner could easily save as much as $5000 a year of $416 a month on a $500,000 mortgage by reducing the interest rate 1%. That $416 that could be used for a car payment, new carpet or furniture, entertainment, or anything that would begin to drive the local economy, unless of course you live in California and will soon be the victim of the recently enacted tax increases. Still, however the $300 dollars a month for California residents would be a sorely needed windfall.

This group of people that could begin to pump money into the economy are a proven entity. Their financially solid and not likely to default or hand over the keys in lieu of making the house payment. Plus, will someone answer this last question? “Aren’t property owners less likely to default when the payment has been reduced”.

Isn’t this what the just announced Homeowner Affordability and Stability Plan was based upon? Let’s encourage and untie the hands of folks that can get things moving again.