PB&J
Good Economics Starts with Universal Home Ownership
That Everyone can Afford
You can’t legislate morality — but building a National Home Lending Bank that competes against the values of Too-Big-To-Fail Banks is entirely possible.
A National Home Lending Bank
The idea for America to become the first nation in history to directly include the general population in the process of money creation by forming a National Home Lending Bank, (NHLB) was born out of the new and dangerous phenomenon that surfaced during the financial meltdown beginning in 2008, commonly referred to as “too-big-to-fail.” It is the position of Public Banking and Justice (PB&J) that democracy can no longer abide a monetary system that functions without direct input from the public sector. Corporate giants, acting under government oversite, have demonstrated a willingness to keep the public from directly benefiting from money creation’s ability to fund simple public needs, like housing, at cost. Unequal access at the point of money creation in a mature economy erodes the will of the people. This is a clear breach of fiduciary duty which cannot be allowed to stand.
Universal Inclusion of the General Population into Money Creation (UI) builds on the idea that homeownership can be universally affordable in America. Once credit for homeownership is offered to all income levels, people’s homes can become the primary justification for all money creation our nation needs to compete in the world’s market place. These homes represent the total work force, both labor and ownership stakes. The cash that flows from these homes on a monthly basis in America symbolizes our collective economic strength. Universally-owned homes and communities they exist in become enviable assets. The whole world can understand how these valuable America assets can justify the money it creates out of thin air.
Money is built on trust. Trust demands fair play and free markets. Productive might has a language of its own, as does military might, but what people around the world identify with and trust the most is the standard of living they see the general public experiencing in America. If we want the American dollar to remain strong, we must not forget that it is our values and how we manage the public-good, that matters most — not the size of our corporations or military.
PB&J endorses the formation of a National Home Lending Bank which will replace profit-taking form housing’s cash flow, with profit-sharing of that cash flow. In this way the general public can begins its inclusion into the power politics of money creation. A profit-sharing business model for housing is a good start as it does not interfere with business lending and its addresses the need for affordable housing.
Once lending at cost for housing begins, the housing stock begins to be reconfigured to accommodate turning many renters into owners, and profit-sharing is established, the NHLB can turn its focus to marketing “Sovereign Mortgage Securities” a concept coined by PB&J that will be explained later.
Keeping the door open for the NHLB to expand into areas other than housing must be protected when negotiating the NHLB bank charter in Congress. These negotiations will essentially be between the Federal Reserve (the nation’s central Bank) and big business. The new consumer-friendly, profit-sharing NHLB must remember to keep its options open in the competitive atmosphere of money creation; housing is simply the opening salvo for negotiations.
The mission is affordable home ownership at all income levels that profit-shares proceeds from the collection of mortgages. The result is to act as a stabilizing influence over speculative business lending and investing and look to the future for more opportunities to lend into the public-good at cost.
The public can own its own consumer-friendly bank. Now that is a good idea.
Why Home Lending Must Include Public Access to Money Creation
Too much money spent purchasing a home is currently being wasted by banks keeping the public separated from money’s creation. The costs of buying a home can easily double or triple the original price of a home by the time a mortgage is paid in full.PB&J aims to structure home lending so that costs are minimized, literally saving individual homeowners hundreds of thousands of dollars over the course of their lives. Putting more money in home buyers pockets can only be done by a bank that is free to use rules of money creation to help consumers profit rather than keeping the focus on pleasing investors.
Prices will continue to be determined by the free-market; this will not change. Structural changes regarding who is allowed assess to money creation and who is allowed to temporarily hold the deed to a person’s home is what will reduce costs.
Public ownership of the debt replaces private profit-taking with profit-sharing. Currently too many housing dollars leave consumers’ pockets to be funneled into unproductive, passive income investments used for speculation. These mortgage-backed security (MBS) investments carry implicit government guarantees and it is the misused of these MBS that have caused bank bailouts, which in turn grossly bastardize the free market ethos of risk and reward.
Another disturbing practice in the manipulation of housing debt for profit is MBS investments are available only to High Net Worth Individuals by law. Investments that can only be utilized by the wealthy speaks volumes to the question of whether a National Home Lending Bank (NHLB) is needed or not. It is PB&J‘s stance that using housing dollars that only the rich can play with is blatant favoritism that feeds into income inequality.
There is a fiduciary duty that comes with creating money for home lending. Helping High Net Worth Individuals without equally helping the general population surely ignores this duty. Equally bad, this dereliction of duty undermines our currency and economic potential as well as our democracy.
PB&J believes transforming home lending will transform the economy given that a projected $500 billion will stay in the consumers’ pockets every year rather than disappearing into the secondary mortgage market and the shadow banking world with its murky use of derivatives.
An NHLB structure will be good competition for TOO-BIG-TO-FAIL-BANKS. Neither an economy nor a democracy can stand strong if banks can demand and receive bailouts as they see fit. The nation has seen how dangerous speculating with home mortgages is, and how excessive profit- taking has hampered economic expansion and upward mobility.
PB&J‘s vision for the local banking landscape sees public and privately owned banks partnering so to be mutually beneficial when services and deposits need to overlap. The NHLB’s control of the housing market will help mitigate greed, shrink too-big-to-fail–banks, stimulate the economy, by providing affordable home ownership at all income levels. It accomplishes this by creating and collecting mortgage payments at the lowest cost humanly possible. Excess mortgage revenue will be redistributed back to home owners through a profit-sharing program made available in retirement. Public deposits as well as the valuable real estate assets the NHLB holds for the public will create profit-sharing income as well. These assets the public holds can be borrowed by private-for profit banks willing to pay a cost similar to the existing FED fund rate.
NHLB home loans will be made with no interest, will require no down payments, will not charge private mortgage insurance, and will have maximum loan lengths of fifty years. All this, while returning excess profits to the general public. This is made possible by the new policy of UI mentioned above.
Control money, and you control power. Justice demands the public owning control of its largest assets — their homes. However, none of this happens without UI — the public’s inclusion into the world of money creation, which in effect is the definition of a public bank.
Lowering all monthly home payments continually frees up a tremendous amount of money that is better used stimulating the economy.
How a National Home Lending Bank makes Home Ownership Affordable at All Income Levels.
The main features of this new home loan include the following:
- No interest
- No down payments required
- No fees
- Closing costs paid by the bank *
- No Private Mortgage Insurance (PMI)**
- Basic home insurance provided by the bank***
- Profit-sharing (beginning in retirement)
- No-cost Reverse Mortgages
- Low-cost home equity loans
- Taxes will be paid by the bank ****
- HOA dues are not paid by the bank
- All loan criteria apply equally to all income levels
- Loan lengths may be extended up to 50 years
*Note The bank will pay closing costs for a first-time buyer.
** Note PMI is a currently unnecessary fee that will be eliminated.
*** Note Bank-provided insurance will cover structural damage, not personal property. Individual replacement insurance will be adjusted during profit-sharing if need arises. (wild fires and other natural disaster frequency are changing and future insurance costs may become more expensive)
****Note The bank agrees to pay property taxes (up to 2.5%) with every home loan. The discrepancy in state taxes will be adjusted for during profit-sharing.
If it sounds too good to be true, then it probably is…
But this does not apply to Affordable Homeownership
Publicly Created Loans are Structured Differently
The best way to view publicly created debt for home lending is to understand you are borrowing money from yourself for a fully collateralized loan, and that in effect the government is owned by the people. As long as the rules of repayment are economically sound and done in a fair and equitable manner, then public lending can commence in endless different scenarios without arbitrary rules being dictated by numerous third parties bent on one thing — profit taking.
A good example of this kind of one-stop public flexibility can be found by looking at how home mortgages were handled during the 2008 financial meltdown, or more recently, the Covid-19 crisis when home mortgages became temporarily problematic for a large segment of the country.
Actually, if the National Home Lending Bank (NHLB) was in control during 2008, the bank meltdown would never have happened and bailouts would not have been necessary. As for the Covid-19 crisis when national and state work stoppages were mandated by national and state decrees, mortgage payments easily could have been temporarily suspended. This type of stimulus package delivered by a NHLB could have been larger and been done without adding the wrong kind of national debt onto the books.
PB&J’s suggestion of all home loans being repaid with a minimum of 20% of the income stated at time of purchase is a figure that that is fair and equitable, as well as in keeping with current economic practices. You can pay more, but you may not pay less. This 20% figure marries the reality of wages to the economic justification of creating money for mortgages, and in doing so succeeds in maximizing home ownership at affordable costs.
The length of the loan is what differs, never the payment. The larger the loan the longer it takes to pay off the home you buy. The focus is not on collecting the debt as much as it is on the nation getting what it wants in a manner that is fair to all. Choosing to put money down on a home will shorten the length of time it takes to buy your home. Paying more than the agreed payment, called prepayments, will also shorten the loan.
When loans are paid-in-full the property taxes will no longer be paid by the bank, and bank-provided insurance will end. Take this information into consideration when deciding to put a down payment on a house or making prepayments. Remember, there is no interest on owner-occupied home loans any longer. The NHLB will be glad to help you with money saving strategies.
Consumer-Friendly Formulas:
How to Find Your Maximum Loan—All Incomes qualify Calculator
- Take gross income, multiply by 10
The resulting number is the maximum you may borrow from the new bank.
Example:
- If income is $10,000, this equals a $100,000 maximum loan amount.
- If income is $48,000, this equals a $480,000 maximum loan amount.
- If income of $133,000 equals a $1,330,000 maximum loan amount
How to Find Monthly Payment
- Multiply income by 20%, this is the required amount of money you must pay on your home loan every year.
- Divided yearly loan amount by 12
The resulting number equals your monthly loan payment.
Example:
- 20% of a $10,000 yearly income is $2,000. Dividing $2,000 by 12, equals a monthly payment of $167
- 20% of a $48,000 yearly income is $9,600. Dividing $9,600 by 12, equals a monthly payment of $800.
- 20% of a $133,000 yearly income is $26,600. Dividing $26,600 by 12 equals a monthly payment of $2,217
How to Find the Length of a Loan
Dividing loan amount by monthly payment equals length of loan.
Example:
- A $100,000 loan paid at $167 per month takes 49.9 years to complete.
- A $200,000 loan paid at $800 per month takes approximately 20.833 years to complete.
- A $1,000,000 loan paid at $2,217 per month takes approximately 37.588 years to complete.
There are millions of different possible scenarios. The three examples above give scenarios of home loan options available: for a person living below Federal poverty standards, an average household income, and an upper middle-class income.
How Retiree Benefits, Profit-Sharing, and Reverse Mortgage Programs Work
An important part of the new home loan is profit-sharing and voluntary low-cost reverse mortgage availability that commences once a home owner reaches retirement age.
Monthly mortgage payments generate much more revenue than they consume in costs which should not stray far from 10% of revenue. The excess 90% of revenue is returned to homeowners monthly through profit-sharing checks staring at retirement age.
It’s recommended this remaining revenue is simply divided equally among retirees and not paid according to the size of the loan payments. This policy is justified by the economic benefits that larger loans get from leveraging cheap money over time. The only modification needed is to adjust profit-sharing checks to resolve the issue of varying property taxes collected from state to state.
The profit-sharing benefit is never added to an estate; it dies with the owner. Homes need not be paid in full to start reverse mortgages. Home equity loans are available at a homeowner’s request.
Summary — Lending Made Easy
1) Buyer’s proof of income must be established.
2) The home must be appraised.
3) A mortgage debt is recorded.
4) The government creates money electronically and gives it to the buyer.
5) The government collects monthly payments from the buyer.
6) These monthly payments cover all costs.
7) All excess revenue generated from mortgages is used for profit-sharing.
Explaining The Concept of Public Home Lending
The National Home Lending Bank (NHLB) must ensure it is placed under the auspices of the US Treasury Department. This can allow for money to be created electronically, independent of the Federal Reserve (FED)
The Fed would continue to operate as is does now if it so chooses, albeit without the business of any home buyers that choose to get their home mortgage financed by the NHLB.
From the government’s point of view housing debt will remain on the books forever at the NHLB under the watchful eye of the US Treasury. Individual loans will come and go, but for as long as the economy is structured to require debt for housing, this debt will be the responsibility of a public NHLB.
Allowing the government to hold mortgage debt for the public has many advantages over the current system that sells the nation’s housing debt all over the world.
Public ownership of housing debt creates a market for Home Equity that heretofore never existed. Creating a market for Home equity will greatly benefit the general population. According to Basil III’s rules for banking under liquidity coverage ratios – High Quality Liquid Assets (HQLA) — clearly delineates how home mortgages can be used in money creation.
Home mortgages and home equity held at the US Treasury in a National Home Lending Bank are backed by the full faith and credit of the US government. In so doing, income will be generated for the profit-sharing system that will be administered by the NHLB. Publicly-owned mortgages tapped in this fashion justify money creation taking place within the Federal Reserves (FED) system.
Homeowners that had the good foresight to get their home loans through the NHLB will see their profit-sharing checks increase as the NHLB will be compensated by the FED for creating and holding mortgages safe and secure.
Playing with Fire
Creating money out of thin air is a dangerous game, but it is the only game in town. The NHLB sees value in the FED acting as a Central Bank and will not infringe on its member banks from making the hard calls for loans that require professional attention. It takes professional business bankers to make business loans. However, total separation of money creation from the public is unwise. In certain situations like housing, public money creation can improve the economy as well as the nations standard of living.
Profiteering with PUBLICLY Created Money is a Manipulation of the Public Trust
Home loans do not need expensive professional attention as they are a simple and straight forward basic need. Paying existing banks for services rendered will be cultivated at the NHLB, but it will not require the Fed to create money for them. In fact home buying will continue to be done locally in much the same way as it is done currently, but without the expensive oversight of the FED and its member banks.
Creating homeowners and affordable housing is what is important, nothing else.
The End of Too-Big-To-Fail Banks
Making homes affordable is easy…
Transitioning away from To-Big-Too-Fail Banks
will take some finesse.
The largest cash flow in the world comes from the U.S. housing market. The U.S. housing market’s value is approximately the same as all of corporate America. The National Home Lending Bank (NHLB) therefore will be a powerful entity.
Before the NHLB begins operating, negotiations with the Federal Reserve regarding how these two huge financial giants will co-exist must be far enough along so that the economy will not be held hostage. When making changes to a heretofore unchallenged power structure, it is possible unpatriotic and even a purposeful act of sabotage might raise its ugly head. The private for profit world of banking will be forewarned and given plenty of time to adjust to the new normal. Most likely its stance will be that the NHLB has unfair competitive advantage that will destroy the economy they have built. PB&J’s response to this, in simple words is — nonsense, the money in question comes from home buyers, the money to buy the homes comes from their representative government; so the how can a private banking monopoly possibly lay claim to a public debt?
The NHLB will be negotiating from a superior position. It will have a reliable cash flow with a profit potential expected to be approximately $500 billion per year and a safe asset base consisting of under-leveraged collateralized homes.
The Federal Reserve, its member and non member banks, will be receiving trillions of dollars form the NHLB for any home loans that these banks lose to NHLB refinancing. With careful use of these proceeds reorganizing into smaller and leaner banks should be a smooth transition. However, the current banking system will need to circle the wagons and cooperate with each other when unwinding their speculative investments tied to mortgage-backed securities. This can be done as over 90% of these investments are are held by a hand full of the largest too-big-to-fail banks.(TBTFB)
PB&J is willing to join the discussion about the unknowns of the transitioning period that will see a NHLB serving as the representative for affordable housing. The power structures of high finance will receive full cooperation from the NHLB to insure the monetary system recovers and trends towards sustainability as dictated by its charter and fiduciary duty.
If for some reason the TBTFB system is so overextended that it needs another bailout, so be it, for once the cord has been cut and paid for, the taxpayers can move on with a powerful, consumer-friendly profit-sharing bank solidly backing their interests in the dog-eat-dog, buyer beware world of high finance.
These are not idle words, bare bones costs and the NHLB’s profit-sharing structure are easily understood and transparent, this culminates in a poor environment for greed to take hold. Local involvement of pre-existing banks and ancillary support will be utilized to the extent they are willing. The vision here is definitely one of; for the people by the people.
