4%/40-year mortgages demanded of government

A local grass-roots campaign is under way to get federal lawmakers to establish a new program allowing all homeowners to modify their existing mortgages to a 4 percent interest rate for 40 years.

The 4/40 for Freedom campaign was founded by Ken Parker, owner of Parker Properties/Parker Development. The campaign includes a petition asking Congress to draft and pass legislation that would establish the government-backed loan program.

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The campaign's Web site, which includes more information and the petition, is www.4-40forfreedom.com. Parker said the petition already includes at least 500 signatures.

The proposed government loan program would take money from the federal budget and apply it toward paying the difference between the existing interest rate and the new interest rate to the mortgagee, Parker said. The application process would be open for only a year, but the 4 percent rate would apply for the life of the loan, he said.The estimated cost of the program over a 40-year term is $573.3 billion, but the federal government's payments back to taxpayers for mortgage interest deductions will be lower, making the program cost less, he said. Also, the savings will provide additional capital for the government's use in the economy, he said.

"It obviously helps the homeowner because it makes them more sure-footed," Parker said. "It also allows those people who have larger mortgages who aren't in real bad straits to have a lot of additional cash that they can now disburse back into the economy. It totally cures this foreclosure epidemic we're living in because people will be able to go back into the marketplace and buy a property at 4 percent for 40 years. And ... it allows all these banks to heal their balance sheets."

According to the L. William Seidman Research Institute in the W.P. Carey School of Business at Arizona State University, the national average debt on a current residence is $100,904, and the national average interest rate is 6.4 percent. Reducing the interest rate to 4 percent on a mortgage of $100,904 would save nearly $265 each month.

Jeff Underwood, vice president for the Central Chapter of the Arizona Association of Mortgage Brokers, said it's positive to see someone other than the federal government trying to come up with solutions to the current mortgage crisis.

"Most everything that the government has put out has not worked yet," he said. "I do like that there's other ideas floating around out there. Whether this could work or not, I don't know."

The potential problem with the proposal is that it would make the 4 percent for 40 years available to people who lost their homes to foreclosure, Underwood said.

"That sounds like a can of worms to me," he said. "It ... will cause a lot of people to say oh, so I guess I could just walk away from my house, and turn around and buy another house. It's a little confusing there."

Another problem could be mortgagees being overwhelmed by the volume of homeowners seeking the modification, Underwood said.

"I don't know how they could keep up with the number of calls from people who want to have this program," he said. "That's a lot to ask of the servicing bank if this gets announced and, for instance, everybody who has a mortgage with Bank of America calls Bank of America."