By now, whatever stimulus effect the Obama Stimulus Plan has had is nearly gone or gone. It is certain that the approximately $200 million in Democratic Middle Class Tax Cuts are gone which was the price Republicans demanded as part of the re-authorization of the Bush tax breaks for the top 2% of wage earners near the end of last year. The states have spent all the federal monies given to them which allowed states to initially avoid laying-off police, firefighters, emergency medical technicians and teachers and now states are going through lay-offs in droves further depressing the economy. And see here.

There were only 18% of the Stimulus Plan dollars which went to “infrastructure” and those dollars are gone, too. The economy was treading water, and now growth is slipping. More federal dollars for bridges, roads and schools are needed and proposed by President Obama but, Republicans apparently will not vote for anything but cutting federal spending or cutting taxes for corporations and millionaires.

15 year fixed mortgage rates for well qualified borrowers are approximately 3.375 % as of the writing of this piece. Some broker/lenders will quote lower rates if you buy points. What’s there for the merely “decently” qualified borrowers? You might get 3.5% for a 15 year fixed rate. But, there’s a way to get all of those amongst us who are current on our loans and the loans are owned by FHLMC (“Freddie Mac”) and FNMA (“Fannie Mae”) (recently combined into the FHLA), FHA and VA an immediate break which will stimulate the economy.

All the federally owned mortgages for any borrower through any federal program who is current  could have their mortgage rate dropped by unilateral federal action to just 4%. According to one expert, such a loan rate reduction could have a stimulus effect of over $100 billion and not cost the taxpayers a dime.  The idea initially had been proposed by Republicans, but, I wouldn’t be surprised if President Obama supports such a plan that Republicans will immediately oppose it but, it’s a good idea and deserves thoughtful consideration.

I propose that the all the federal agencies involved in backing home mortgages do an emergency rulemaking and individually declare that existing and future loan rates are reduced to 4% so as to stimulate the economy and home purchases. Reducing home loan rates to 4% for borrowers who are current is less risky than other options which might put money directly into the hands of consumers. The extra money could be spent, giving the economy a boost or saved, giving lenders more capital for loans.

Lenders and mortgage brokers will still have opportunities to finance or refinance the loans downward to the lower rates for “well qualified” and “decently qualified” borrowers to even lower rates which would further stimulate home purchases or savings. The competition among lenders could result in additional savings to consumers and more economic stimulus, apart from any vagaries of rating agencies and the prices for T-bills.

If the federal agencies involved cannot unilaterally reduce rates to 4% by law then, the “super committee” authorized by the debt ceiling agreement which has to report back to Congress by November 15, 2011 could report out such language or proposal in legislation which would immediately authorize such action with its report and must be voted upon by December 15, 2011. If the economy improves, employment improves and so will tax collection and the federal debt imbalance the committee is charged to address.

Low risk options which put more money into the hands of consumers could increase consumer purchasing at a time when consumer confidence is at or near an all time low. And see here.

Additional federal stimulus for the sluggish economy could start with federal agencies reducing mortgage interest rates for borrows current on their loans. Some might suggest unilaterally reducing mortgage rates on federally backed home loans for other borrowers at the same time to help with those behind, upside down or near foreclosure on their home loans. Reducing mortgage rates for borrowers whose mortgages are federally backed and are current would send a strong message to the country and the world that the US is serious about taking measures to move the economy forward and to protect the investor Middle Class who will retire and rely upon investments for their retirement incomes.