The Housing Solution No One Wants to Hear

For over 50 years, FHA and VA have had in place a program which, if those in DC and elsewhere were to consider, may find itself to be a lifesaver in today's housing crisis. Not to mention it could save us (taxpayers) billions. The simple solution I suggest is to take the FHA guidelines that allow 'qualified buyers' the opportunity to assume a mortgage from someone who needs to sell, can't make payments or is simply mailing in the keys.

Take this long time program and authorize Fannie and Freddie to allow all mortgages to be assumable. Deal with the servicers and securities folks in the same manner. Instead of allowing banks to pay dividends, buy out other banks etc., force them to work with these 'qualified buyers' to take over the mortgages of thousands upon thousands of homes.

Bottom line, we use the 700 billion (which will never cover the current needs) to help modify those mortgages which are under water and to set up a program to facilitate the thousands of buyers standing on the sidelines. Let's focus on the fact that we can finally begin reducing the inventory in huge numbers. This is a plan that can happen quickly if everyone gets on board!

Opposition will come from many corners, including the real estate and mortgage industry, however I would then simply ask: "Which would benefit this country more:  a plan that allows responsible and qualified borrowers to takeover someone else's inability to pay, which is currently ruining neighborhoods, killing the future for potential buyers due to credit from foreclosure, bankruptcy etc - or simply creating another new government agency to first purchase all these toxic loans and then resell them?"

This plan allows Americans to get in at reasonable prices, keeping the median price down and affordable for others, while creating cash flow for these cash strapped investors who no longer want to lend. There are many more advantages which I don't have time to list.

For those in the real estate and mortgage industry, remain positive to this idea as you will both be necessary to help facilitate the process and therefore be paid.

Lastly, consider the real benefits. Buyers can take over with no money down after going through the same rigors of underwriting as buyers do today. You now have people capable of paying. Sellers, or those unable to continue, will have save their credit, thereby allowing them back in the game once they regain their financial footing. These people would be otherwise lost. The biggest benefit is that we use half or less of the 700 billion....that is, unless those in DC don't want to give the taxpayers a break.

Comments

[John Preston:]

Say it aint so, Joe.....

There has to be a better solution than letting loans be assumed......

first, if the buyer qualfies, get a market rate loan...assumptions could provide false inflationary support for prices....

Second, lenders have priced the payoff of mortgages into the current rates...assumptions would cause rates to increase beyond the current market spreads...

Bad idea.....

2008 Nov 10 08:35 AM

[Smalltownba...:]

Why does everyone want to use our public funds (taxes the government has forcibly taken from the mortgage and tax paying citizens) to give aid to those deadbeat home occupants (home owners have an investment in the property they live in), mortgage servicers and Wall Street firms who created this mess. We can't fix bad debtors by bringing them current and lowering their rate. They will default anyway in 6-24 months regardless of what you do so why waste the money to keep them in the home.

Take the TARP funds if we must have them at all and invest them as follows:

1) purchase at below market bank foreclosure properties that will currently not sell at any price.
2) contract for the completion, rehabilitation or improvement of these properties to reduce negative impact on surrounding homes.
3) offer incentives, low fixed rate, etc. to willing buyers, whether owner occupants or investors
3) sell what will sell and rent those that will not sell.

In doing this you will put Americans (restrict to legal residents of US) to work doing the construction work and reduce the negative impacts of foreclosure activity on the communities by moving people back in. You will assist the qualified buyers who are willing to make an investment in the properties. The banks will indirectly benefit by selling non-performing assets albeit at significantly below book value. The economy can begin to recover for real and responsible homeownership will be supported. This type of recovery can be sustained and amounts to an investment in the future instead of a bailout of the past.

Oh God...I forgot, they already spent most of that $700 Billion and have nothing to show for it other than larger banks at the top of the pile.

2008 Nov 10 09:02 AM

[James Wilson:]

There is something missing here. The current report of over building from the housing boom only includes about half of the housing that was built.
There is another report show doulbe + the curent amount of homes built.
Remember they were still building while housing was crashing for 6 to 8 months. Many markets did not fall when Flordia, Vagas and Calif did. So builders kept building.

2008 Nov 10 09:45 AM

[Still Renting:]

Well, I for one am counting on hope and change - of some sort.
;)

Meanwhile, I'm moving to a rural location and waiting for the move from the "awkward" stage to stage three, as mentioned here: .
billstclair.com/lodge/...

You think I'm kidding? I just bought the property. 'Course, to be fair, the politicians are a different breed in rural states. A little more approachable. That is a good thing.

I will say this: Now that it is clear that any taxable income I make will have a big red target painted on it, my primary goal is to create as little of it as possible.
Key word - taxable.

In my band I sing a cover song called Copperhead Road. Maybe there's a lesson there.

Disclaimer - any reference to illegal activity is purely in jest. I will do all I can, but it will be done legally. Please, KGB/FBI/homeland security agents, look elsewhere for REAL bad guys.

2008 Nov 10 11:05 AM

[rm:]

Uh, excuse me?

[Buyers can take over with no money down after going through the same rigors of underwriting as buyers do today. You now have people capable of paying.]

A big part of the rap on homeowners in default was that they "have no skin in the game."

[Sellers, or those unable to continue, will have save their credit, thereby allowing them back in the game once they regain their financial footing. ]

Are you telling me that your idea involves NO principal writedown?

Who in their right mind would assume a loan that exceeds the value of the home?

And if in fact there is a write-down, then the seller's is NOT going to save their credit, as it will be reflected on their report.

TC, I normally enjoy your comments very much, but who, exactly, will buy these homes? Supply exceeds demand, and home ownership rates are still irrationally high.

Rehab with intent to re-sell is a different game than rehabbing to rent. Converting a fix-n-flip to a rental is a PAINFUL experience, mostly in the pocketbook.

2008 Nov 10 11:06 AM

[RPS123:]

Assumability should be used as a tool to help during the crisis, but any lender can modify the terms of any of their loans whenever they want to, they just have to be asked to and be willing. There are too many loans out there to do this quickly on a case-by-case basis, however.

Most importantly, the two biggest reasons why this idea won't help much are:

-- the value of the underlying assets in most troubled loans is below the value of the mortgage;

-- many of the troubled loans have creative interest rate terms, i.e. adjustable rates which started off barely affordable for the borrower and which have reset too rates which are too high to be worth assuming.

Lenders should be working with troubled borrowers who are in the position to stay in their homes with a mortgage modification. Mostly, people overextended and will be foreclosed because home prices were irrationally high and the loan products were irresponsible. Its going to take some time for this to wash out and that can't be avoided.

Just like we can't count on Social Security, don't count on your house to buy your retirement. If anyone ever offers you a 100% LTV loan in the future, run, don't walk. Bad lending practices hurt all of us.

2008 Nov 10 12:51 PM

[Joe Adamaitis:]

RPS
RPS,
in my 3rd paragraph I talk about how we might be better to use a fraction of the money versus buying the entire mortgage as the bailout intends on doing whether you or I like it or not.

I'm attempting to get a discussion going in hopes that these people understand that there might be better choices than to throw one trillion dollars or more at this. I certianly don't condone 100% financing nor do I condone anything that has happened in the past. Hope that explains it a bit more.

On Nov 10 12:51 PM RPS123 wrote:

> Assumability should be used as a tool to help during the crisis,
> but any lender can modify the terms of any of their loans whenever
> they want to, they just have to be asked to and be willing. There
> are too many loans out there to do this quickly on a case-by-case
> basis, however.
>
> Most importantly, the two biggest reasons why this idea won't help
> much are:
>
> -- the value of the underlying assets in most troubled loans is below
> the value of the mortgage;
>
> -- many of the troubled loans have creative interest rate terms,
> i.e. adjustable rates which started off barely affordable for the
> borrower and which have reset too rates which are too high to be
> worth assuming.
>
> Lenders should be working with troubled borrowers who are in the
> position to stay in their homes with a mortgage modification. Mostly,
> people overextended and will be foreclosed because home prices were
> irrationally high and the loan products were irresponsible. Its going
> to take some time for this to wash out and that can't be avoided.
>
>
> Just like we can't count on Social Security, don't count on your
> house to buy your retirement. If anyone ever offers you a 100% LTV
> loan in the future, run, don't walk. Bad lending practices hurt all
> of us.

2008 Nov 10 05:02 PM

[aby1366:]

After doing the bankrupt thing I discovered that I could put away up to 25% of my monthly income into savings. This beats ANY loan, credit or home equity schmear to shame.
Maybe a school program on how to save might be better. Would save a whole lot of headaches,no?

2008 Nov 10 07:51 PM

[SteveD64:]

That is actually a pretty good idea....

All of the people assuming the loan are going to be financially savvy...they will know what they are doing, work to re-structure etc etc...

This idea of "keep people in their homes" is simply political "blue sky"...these people simply can not afford the home, not now, not in two years...better to foreclose and place house on market at market price...buyers are everywhere

Because each loan is different there is no "one size fits all"....different laws in each state...it has to be done one loan at a time...the manpower, legal expense and time slippage are expensive.....

2008 Nov 11 12:11 AM