Driving the van home today, I had an odd economic idea as I was listening to all the reports on loan problems. I wonder if it is something worth suggesting to my congress-critter, so I thought I would ask you, my gentle readers.
Suppose the government created a new government-funded loan program. This program would have a low interest rate, fixed for 30 years based on when you got the loan, based on whatever rate is set by the fed plus a small percentage. This loan, plus any conventional first mortgage you might have on your house, could only fund up to 80% of the assessed value of your house at the time of the loan… plus, the government loan could make up no more than 50% of that loan.
In short, the notion is that the government would provide the loan for 50% of your loan amount. However, the interest on the government portion of the loan would not be tax-deductable. You would instead get the savings by having the significantly lower interest rate for half of your mortgage. My guess is that the interest on the program would provide the operating costs for the program, and the government would bring in significantly more funds in current tax dollars.
However, I don’t have the math or accounting background to know whether this is a reasonable or a hare-brained idea. For example, I have no idea where the government would get the funds to loan. But it might be an intriguing way to address this sub-prime problem. So where are the flaws?
