Updated March 20, 2009: The stimulus bill is now a law. Read our roundup of the many ways you can benefit.
Without any Republican support, the 2009 stimulus package pushed by President Obama passed the House of Representatives. The bill is now making its way through the Senate, and it won’t come up for a vote without discussion and amendments. A number of likely amendments, proposed by Republicans and Democrats, address housing issues. Housing — specifically, the housing bubble, is considered by many to be the root of the economic downturn.
Here is one of the amendments being considered.
Senate Republicans are likely to introduce a provision that would encourage lenders to offer a 30-year fixed rate mortgage at 4% for a limited period of time. The loans would only be available to credit-worthy home buyers and homeowners seeking to refinance. (CNN)
When housing prices increased the level of affordability for most buyers, people stopped buying houses and prices, on average, stabilized or fell. If this is a root cause of the economic downturn, the necessary correction would involve allowing prices to fall further until reaching a level at which more people were willing to buy. In the mean time, supply would be reduced as home builders continue to slow down production. But this amendment would do the opposite.
Giving more people access to credit will allow people to qualify for bigger mortgages to afford higher-priced houses. This would keep prices inflated. On the other hand, giving people access to more credit will help people feel they are in a better financial position. Economic downturns are partly psychological; good sentiment can go a long way to turn the economy around.
A 30-year fixed-rate mortgage at 4% is a great deal. The difference between the market rate and this benefit would be paid by an addition to the stimulus package. Like the rest of the stimulus, it would be paid through government debt issued mainly to overseas investors.
Updated September 4, 2009 and originally published February 2, 2009.