All homeowners current on their mortgages need to be refinanced into a mortgage with a 4.5% interest rate to help the economy, said Ted Jones, the chief economist at Stewart Title.
He provided what he called his "no tax" solution to the mortgage crisis, during a meeting of the California Association of Mortgage Professionals in Long Beach, Calif. It is similar to one he spoke of at the group's convention in 2009.
It must be a refinance, not a "reset" which cuts the principal owed. Jones explained the current balance must be maintained because lenders should not lose money because of a cramdown.
The program should include jumbo loans and the borrower would not be allowed to take cash out. Fannie Mae and Freddie Mac should buy all the loans and guarantee repayment of principal after three years.
With a $175,000 loan amount, the average household would save $3,500 per year, he said.
"We definitely need the GSAs," Jones said, deliberately misspeaking, redefining Fannie Mae and Freddie Mac as Government Service Agencies (GSA).
He explained housing is still the backbone of America. But the Clinton Administration's housing program, which resulted in Fannie Mae and Freddie Mac purchasing "bad" loans, was "wrong."
The two companies are worth "a couple of trillion" dollars to U.S. taxpayers, he continued. Economics show that if they go away, that will result in higher interest rates.
So there is a need to keep Fannie Mae and Freddie Mac as GSAs, he said.
In other housing news, residential home sales plummeted 30% in July from June, according to the RE/MAX National Housing Report, which provides an early reading of actual closings.
Sales have entered a "period of correction" with the passing of the homebuyer tax credit, said RE/MAX chief executive Margaret Kelly.
"It's hard to know what will come next in this market, but we're looking for a return to slow steady growth by the end of the year," she said.
The Denver-based realty company tracks home sales in 54 metropolitan areas. Despite the drop in sales, RE/MAX reported the median house prices edged down only 0.5% month over month.
The National Association of Realtors issues its report on July existing home sales next week.
In its last report, NAR reported that June existing home sales fell 5.1% from the previous month. RE/MAX reported that June sales were up 7.2% from May.