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A BILL To allow all American citizens the option to modify their existing primary home mortgage to a 4% interest rate, or to provide new home purchasers a 4% fixed 40 year government secured home mortgage, that will stimulate the economy, decreasing unemployment, prevent more bank owned real estate, stop foreclosures, stabilize the housing market, increase tax revenues, and help increase the American household budget. Be it enacted by the Senate and House of Representatives of the United States of America in congress assembled, SECTION 1. SHORT TITLE. This Bill may be cited as the “4-40 for Freedom act of 2012” SECTION 2. FINDINGS (1)

Existing-Home Sales Decline. a. WASHINGTON (The Wall Street Journal) Sales of previously owned U.S. homes fell in July to the lowest level this year and prices also tumbled, a sign the housing sector won't soon regain its footing. Existing-home sales declined 3.5% from a month earlier to a seasonally adjusted annual rate of 4.67 million, the National Association of Realtors said Thursday. Economists surveyed by Dow Jones Newswires had expected home sales to rise by 4.0% to an annual rate of 4.96 million. Sales in June were revised to 4.84 million from a previously estimated 4.77 million. Lawrence Yun, the NAR's chief economist, said many consumers are being held back because they can't get financing. "Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs," Mr. Yun said. By Jeff Bater and Jeffrey Sparshott – August 18, 2011

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Tighter Lending Crimps Housing. a. (The Wall Street Journal) The percentage of mortgage applications rejected by the nation's largest lenders increased last year, spotlighting how banks' cautious lending practices are hampering the nascent housing market recovery. In all, the nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators. Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder. By Nick Timiraos and Maurice Tamman – June 25, 2011


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Housing Imperils Recovery. a. NEW YORK (The Wall Street Journal) Home prices have sunk to 2002 levels, effectively wiping out almost a decade's worth of home equity across the U.S. and imperiling the fragile economic recovery as Americans confront the falling value of their biggest investment. A closely watched home-price index released Tuesday, the S&P/Case-Shiller National Index, showed that prices nationwide fell 4.2% in the first quarter after declining 3.6% in the fourth quarter of 2010. The index had seen increases in 2009 and early 2010. "Home prices continue on their downward spiral with no relief in sight," said David M. Blitzer, chairman of S&P Index Committee. By S. Mitra Kalita and Nick Timiraos – June 1, 2011

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New Foreclosures Jump 21 Percent. a. (MortgageLoan.com) (The NASDAQ OMX Group, Inc.)Foreclosures were initiated on more than 217,000 homes in March, a 21 percent increase over February's rate, according to information released today by the HOPE NOW alliance. Nearly 85,000 properties were forfeited through foreclosure sales during the month, a 35 percent increase over February.The increase in foreclosures occurred despite a declining trend in mortgage delinquencies. Meanwhile, the number of at-risk homeowners obtaining private mortgage loan modifications from their lenders also increased significantly in March. Nearly 77,000 propriety loan modifications were completed in March, up from 61,000 the month before. By Peter King from – May 2, 2011

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Why We're in for a Long, Hard Economic Slog. a. WASHINGTON D.C. (The Wall Street Journal) Our study of all the postwar recessions and the Great Depression leads to the following empirical proposition: If there is no recovery in housing expenditures, confirmed by a recovery in consumer durable goods expenditures, then there is no economic recovery. In the Great Depression and in every recession since, recovery of residential construction has preceded recovery in every other sector, and its recovery has been far larger in percentage terms than the recovery in any other major sector. Applied to the Great Recession, it appears that those who see signs of a recovery may be grasping at straws. What one should hope is that this time it is different from every one of the past 14 U.S. downturns, but those who believe this have the weight of past experience against them. By Steve Gjerstad and Vernon L. Smith – September 10, 2010

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Flaws Plague Foreclosure Relief Program. a. NEW YORK (msnbc.com) Latest effort to save homes having only limited impact, faces challenges. Millions of Americans who are struggling to save their homes from foreclosure are trapped in a labyrinth of disappointment and misinformation created by the very institutions they’ve been told are trying to help them. Ten months into the government’s third program in two years to stop a record wave of foreclosures, homeowners, housing counselors, consumer advocates and attorneys working with borrowers report that the


latest effort is falling far short of its goal. In many cases, lenders are moving to foreclose even after homeowners get approved for a loan modification, housing counselors and attorneys say. By John W. Schoen – January 26, 2010 (7)

Why Mortgage Modification Isn’t Working. a. (The Wall Street Journal) Last year more than two million Americans lost their homes to foreclosure. This year, that number is expected to be even higher. Roughly 760,000 homeowners have received loan modifications on a trial basis. But just 31,000 modifications have been made permanent. That’s a success rate of just 1%. This means that up to 99% of eligible homeowners struggling with their mortgage payments have been unable thus far to modify their loans. By Arkadi Kulmann – January 20, 2010

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President Obama’s Mortgage Relief Program Fails To Deliver. a. NEW YORK (Associated Press) (Central NY Real-Time News) Washington President Barack Obama’s plan to fix the foreclosure crisis has been a dud, putting the housing market recovery at risk. Hopes were over-inflated when Obama unveiled the program before an adoring audience of Arizona high school students last February. Almost a year later, it appears only about 750,000 homeowners – a fraction of the 4 million originally projected – might complete the application process, predicts Mark Zandi, chief economist at Moody’s Economy.com. By Rob Carr – January 15, 2010

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U.S. Loan Effort Is Seen As Adding To Housing Woes. a. NEW YORK (New York Times) The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good. In 2008, more than 1.7 million hoes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. This year, more than two million homes were lost, and Economy.com expects that next year’s number will swell to 2.4 million. By Peters.Goodman – January 2, 2010

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Mortgage – Aid Plan Gets Tepid Results. a. WASHINGTON D.C. (The Wall Street Journal) Just 12% of eligible borrowers have started trial loan modifications under the Obama administration’s $75 billion mortgage foreclosure prevention plan, according to a treasury report released Wednesday. The latest data comes amid increasing concern that the effort which relies on hefty government incentives for lenders and borrowers won’t be enough to effectively combat mounting foreclosures across the country. By Ruth Simon/Jessica Holzer-Sept.10, 2009

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Borrowers should get relief now, and the banks should get a guarantee down the road. b. (The Wall Street Journal.) Despite the slight uptick in house prices in some markets recently, the sales of foreclosed properties continue to dampen house


prices and weaken banks’ balance sheets. The uncertain pace of future losses makes banks nervous about the adequacy of their capital, which discourages bank lending and economic growth. The Obama housing plan does not solve the problem of defaults driven by high loan-to-value ratios. Instead the administration has pinned its hopes on lowering mortgage rates to raise house prices and on the Public Private Investment Partnership (PPIP) to remove the high loan-to-value mortgages from the banks’ balance sheets. But mortgage rates have risen and the PPIP is a moribund at best. By Martin Feldstein – August 7, 2009 SECTION 3. RESEARCH INSTITUTE SAVINGS DATA (1) Importance of housing: (Seidman Research Institute, W.P. Carey School of Business, Arizona State University. May of 2009) (a.) The single largest category of expenditure by households in the U.S. is housing. (b.) On average, expenditures on housing by homeowners with a mortgage in 2007 was $23,018 which represents 35.3 percent of all expenditures. (c.) Housing is potentially important to note when considering targeted policies that attempt to stimulate spending within an economy. Most stimulus Packages typically include additional government spending and/or tax cuts. Government spending is a direct method by which aggregate spending can increase. A tax cut has an indirect effect on spending increasing a household’s disposable income and therefore allows to increase its level of spending.

NATIONAL AVERAGES WERE USED FOR MODEL CONCEPT Data provided by: L. William Seidman Research Institute (W.P.) Carey School of Business, Arizona State University National average debt on a residence

$100,904.00

National average interest rate payment @6.4% (monthly)

$686.53

New interest rate payment @4% (monthly)

$421.72

Monthly Savings=

$261.81

The above savings are based on national average data compiled by Arizona State


University in an economic report. Every home owner's savings will vary depending on their property's current debt and rate of interest payment. SECTION 4. BENEFITS (1) The benefits to the Existing Homeowner. (a.) “Trickle up Economics” providing a residual monthly stimulus to all qualified American home owners. By allowing the home owner to keep more of their income in the form of the difference of their current mortgage interest rate and a new 4% mortgage interest rate. (b.) Increased available monthly capital to be used for investment purposes or spent on goods and services, which will spur economic growth every month. (c.) The prevention of pending foreclosure due to homeowner’s high interest rate and decreased home value. (d.) Increased homeowner confidence with additional monthly spending capital. (2) The benefits to the Home Purchaser. (a.) It allows borrowers who have lost their home due to foreclosure, to once again re-enter the housing market immediately and purchase a home by meeting the required 4/40 new home mortgage guidelines. (a.) It allows home buyers who were previously ineligible to reenter the housing market due to a foreclosure or bankruptcy that affected their credit and or FICO scores. (b.) The program will provide “Training Wheels” in the form of income verification, a debt ratio, and credit freeze to help teach those who have face financial difficulty in the housing market to save money and live within their means. (c.) The home purchaser may complete the “4/40 training program” and at the same time heal their credit, it provides a chance to start over while being supervised and given financial guidance. (d.) The home buyer now has the opportunity to realize ownership in property that will increase in value as the housing market reaches equilibrium.


(3) The Benefits to the U.S. Economy. (a.) It is estimated conservatively that $300-$500+ billion will flow back into the U.S. economy in the first year. (Seidman Research Institute, W.P. Carey School of Business, Arizona State University. May of 2009) (b.) Property values will stabilize and support stronger numbers as housing demands increase. (c.) When foreclosure market has started to reach historic averages, the banking industry will not have the extreme “toxic debt” burden they have endured for the past years. (d.) The average home mortgage is refinanced every 5 years and when the 4/40 for Freedom mortgage is refinanced, the existing mortgage company’s 1st lien debt is repaid. a. It is estimated due to the credit restraints that the majority of the 4/40 for Freedom new home mortgages will eventually be refinanced out by conventional financing within 3 years (4) Benefits to the US Government. (a.) The federal government’s payments back to the tax payers for mortgage interest deductions will be lower as a result of an overall lower national interest rate which will increase federal tax revenues. (b.)The overall coast of the program will be reduce because all new home mortgages purchased as a 4/40 for Freedom mortgages will be sold in the secondary mortgage market as a low risk US government secured investment. (c.) The economic multiplier effect, which is estimated to be 3-5 times the cost of the program, will create increased economic activity which will result in increased tax revenue. (d.)Job Creation (e.) The US government will save on expenses, ranging from social services like unemployment and welfare as well as Fannie Mae and Freddie Mac. (f.) Business will grow and tax revenues will increase from higher economic activity. SECTION 5. QUALIFICATIONS


(1) Easy qualification for Existing Homeowners. (a.) American citizens can apply for the mortgage for an enrollment period of one year after the date of enactment. After the year has expired the rate will no longer be available to enroll in, but will still be applicable to the mortgages of homeowners who signed up during the one year period. (b.) Only “ONE” single family residence/condominium can qualify for the program per individual or married couple. (c.) Borrowers may be single, husband/wife, or two adult U.S. citizens. Borrowers must be current on their mortgage, or negotiate with the lender a net payback amount. (g.)All mortgages will be modified with no cash out, and applies to first mortgage only. (h.)No appraisal is required. (i.) Homeowners with an existing interest only mortgage will be treated as a standard 4% modification. (j.) One fixed cost for processing all mortgage modifications. There are no discount points or junk fees and costs will be kept at a minimum. (k.)A single family residence can be on a lot up to 20 acres, which must be protected by CC&R’s/deed and cannot be subdivided. (l.) Limited rules apply on a 2nd time mortgage in the first year. a. There must be a reason of hardship, relocation, and etc.. i. 1st time mortgage must be paid in full. ii. Borrower must meet qualifications. (m.) If a borrower modifies their mortgage to a 4% modification and then defaults, they cannot qualify for a 4/40 for Freedom mortgage in the future. (n.)If primary residence is debt free, the applicant can qualify (up to $250,000) for an additional second home as a new purchase as outlined under “easy qualify” for new home purchases.


(o.)If a borrower modifies their mortgage to 4% and the property has a first mortgage only, the borrower cannot place additional liens in the future (OF ANY KIND) on their property as long as the modified mortgage is in place. (2) Easy qualify for New Home Purchases. (a.) Maximum of 28 percent combined income towards debt ratio for mortgage payment. a. 40 percent maximum total debt ratio. (b.)The applicant’s employment history and income statement must verify the ability to service mortgage debt. (c.) All FHA guidelines apply. a. FICO scores do not apply. b. The lending limit is larger than that of the FHA, the 4/40 for Freedom lending limit is up to $2,500,000. i. $0 - $800,000 is 10 percent down. ii. $800,001 - $1,500,000 is 15 percent down. iii. $1,500,001 – $2,500,000 cap, 20 percent down. (d.)Income verification will be used to determine the applicants debt ratio, because the applicants income may increase while enrolled in the 4/40 program they may apply for income reassessment to allow for higher credit allowance. (e.) All American citizens can apply for the mortgage for an enrollment period of one year. Once the year for enrollment in the program has expired the rate will no longer be available to enroll in, but will still apply to the mortgages of homeowners who signed up during the one year period. (f.) The 4/40 for freedom mortgage can only be applied to “One” single family residence/condominium per individual or married couple. Vacation/second homes, rental, apartments and investment properties are not eligible to apply. (g.)Limited rules apply on a 2nd time mortgage in the first year. a. There must be a reason of hardship, relocation, and etc..


b. 1st time mortgage must be paid in full. c. Borrower must meet qualifications. (h.)There is one fixed cost for processing all mortgages and there will be no discount points or junk fees. (i.) If the applicant has a default/foreclosure on their current mortgage 8 months prior to the 4/40 for Freedom mortgage programs approval through congress. The applicant cannot qualify for a 4/40 for Freedom mortgage program for 11 months after the bills enactment by congress. (j.) If the applicant has filed a Chapter 7 Bankruptcy, they can qualify under our standard 4-40 for Freedom mortgage program, but they have to stay in the program for at least three years.....using our "Training Wheel� program guidelines. a. The Training Wheel Program i. The applicant cannot sell their home during this three year training period. If they are forced to move because of job relocation they can qualify for an additional 4-40 mortgage, but the new mortgage amount cannot exceed their current original debt limit, and they must again meet all of the 4/40 guidelines. ii. If the applicant does not complete the three year "training wheel program" they will revert back to square one and start out as if they just received a standard chapter 7 bankruptcy on their credit report. (k.)If the borrower defaults on the 4/40 for Freedom mortgage, they cannot qualify for a 4/40 for Freedom mortgage again in the future. SECTION 6. ESTIMATED COST (1) Economic cost of the 4/40 for Freedom mortgage program. (a.) The estimated projected financing is $573 billion dollars over 40 years. (Seidman Research Institute, W.P. Carey School of Business, Arizona State University. May of 2009). a. This report was done to obtain benchmark estaments in cost. To also estimate the feasibility of providing a modified 4% mortgage to existing homeowners, as well as a 4% 40 year mortgage for new home purchases.


(b.)As a 40 year mortgage program it is estimated that over 50 percent of all 4/40 for Freedom mortgages will be retired by conventional financing in the first seven years. (Seidman Research Institute, W.P. Carey School of Business, Arizona State University. May of 2009). a. 4% modified mortgage homeowners may keep their mortgages longer, versus 4% 40 year home purchasers that will want to move on after an estimated 2 years due to credit being repaired, property values increasing, and 4/40 guidelines. (c.) The first year of the program will be the most costly, which is conservatively estimated at $120 billion dollars. Program expenses will begin to decline from the first year after its inauguration with continuing expense decline each year thereafter. (d.)Finance for “the mortgage modification” is jump-started by existing budgeted US federal capital…while funding for the “4%-40-year new home mortgage” is provided by investors purchasing the mortgage paper in the secondary mortgage market. SECTION 7. NATIONAL ECONOMIC GUIDELINES (1) This bill will provide a freeze of all current federal expense budgets and shall be enforced for a minimum of two years from the enactment date (2) All excess revenues generated through the federal government as a result of 4/40 for freedom program will be used to pay down the US national debt. (3) All future US home mortgages will be income debt ratio driven to determine each applicant’s mortgage eligibility through federal law.


4/40 Congressional Bill