I sent this proposal to Senator Durbin's office several years ago during the start of the credit crisis.... should I include it as an addendum to my PS as an indicator of the type of work/reforms I'll later be a part of? As an aside... I have over 7+ years mortgage lending experience but was always uniquely driven towards reform/regulation instead of exploiting the relatively unregulated credit markets of the last 10 years or so.... I'm very public interest-centric.
Anyways, here it is...
As clearly evidenced by the magnitude and far-reaching external effects into other markets brought upon by the recent mortgage industry crisis, establishing a reliable system that promotes as well as supports safe, responsible mortgage lending is paramount to all American people and our economy.
Home ownership and the ability to securely maintain the financing on one’s home is an instrumental facet of not only individual families and their communities, but national development as well.
This proposal to establish a safe, sustainable system of home-ownership incorporates both private lending institutions as well as our government and begins during college.
Up until now, most students attend college to educate themselves in order to prepare for their professional careers afterwards without really considering their future housing situation until after graduation. As the costs of education continue to increase, most students graduate college with either a fair amount of student loan debt or not much in savings for a down payment on a first home or condominium. Their first (and perhaps only) housing choice is generally an apartment rental but what if there was a system in place that promoted and supported home ownership immediately after graduation? This would be in the best interest of all American people as well as our economy.
This proposal is as follows:
Establish a fund – similar to a 401k at each accredited university which allows a student or his family to contribute a portion of tuition towards a savings account which will be matched at a certain % relative to the average GPA of the student during his 4 years, or through graduate school, etc.
For example – if the student’s average GPA is 3.0 – the fund will match the student’s contribution at 35%. If the student’s ave. GPA is 3.5, it will match it 40% and if a student maintains 3.75+ it would match it 50%. Limits or minimums can of course be determined.
The university can manage and invest the pool of these funds as there will only be an est .25% dispersment per year coupled with a new freshman class that will enroll in this program. This will offset the contributions which the university will make to match each student’s deposits into the fund.
Establish some sort of benefit, subsidization or tax credit for builders to develop (for example) green, affordable, safe condominium communities in major cities where most college students will seek employment upon graduation. Allow graduates to have first right to purchase these properties.
Establish a system (perhaps incorporating special fannie/Freddie guidelines) whereby these students can use their funds for the down payment and qualify for low rate, safe, mortgage financing on these properties.
The end result will be the future of our economy – our graduates – being educated, poised and smartly invested almost immediately after graduation through real estate which is the pillar of America’s future families and communities. Also, due to the down payment, each graduate will immediately have equity in their first property, which is also a pivotal consideration for the safety and performance of these mortgage loans.
Ultimately – the winners in this system are:
The Graduates will obviously benefit from immediate home ownership and equity.
The Economy (this will promote safer lending, more community investment where these properties/communities are built, etc)
Banks/lending institutions (these will be extremely safe loans due to the equity already built into them at time of purchase)
Universities (this will promote better performance and motivation for certain grades as well as a monetary benefit from the management and investment of these funds.
Companies will benefit from more educated, quality graduates who have had an added interest in performing well in school on top of them being immediately invested in the city or community they have decided to move to due to their home ownership.
America – our nation will benefit due to our future graduates learning, preparing and immediately applying safe investment principles through their first property purchase by having a substantial down payment and instant equity.
This is a broad stroke and some tweaking will obviously be needed to coordinate all variables in this model but it is still, nevertheless, an obvious benefit to all parties mentioned and our nation as a whole.
Some of the tweaking will need to be in regards to:
The setting up of each university’s fund and it’s management, investment, etc.
How the government will handle the subsidization, credit or other benefit to the builders which will develop these condo or home developments.
The legal considerations, contracts, etc, pertaining to the (for example) association bylaws of a condo development specifically developed for new graduates.
All other legal considerations pertaining to the fund, tax liabilities at each stage, possible dividends, splits towards the university or back to the student, etc, etc.
Fannie May/Freddie Mac cooperation.