How would you fix the housing market?
Commentary: A call for ideas and strategies
By Inman News, Monday, September 15, 2008.
These are trying times for the housing market and overall economy, with bank collapses, massive buyouts, the federal takeover of secondary mortgage market mainstays Fannie Mae and Freddie Mac, and global financial market maneuvering casting long shadows across the real estate industry. The phrase "financial panic" has wriggled into the heap of dire news.
There is a chorus of discordant voices amid the turmoil and uncertainty, talking about the various bends, breaks and flaws in the financial works and how to repair them. The dominoes are still falling, with inevitable impacts on the housing market.
Inman News would like to hear your thoughts: How would you fix the housing market?
Share with us your insights and strategies on how to repair the damage that's already been done and right the ship for a real estate recovery.
Feel free to comment below or click here to send e-mail comments to the editor.
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Submitted by Jillayne Schlicke on September 15, 2008 - 12:39pm.
The answer is: Time.
We simply need to let the bad loans work their way through the system.
Government intervention will delay the recovery that much longer.
Submitted by Dorothy Harrison, Associate Broker, CRS, SFR, ABR, e-Pro on September 15, 2008 - 1:26pm.
Negative amortization a.k.a. "opt out" loans should be illegal! Didn't we get rid of them during the S&L crises?
Submitted by Susan Silver on September 15, 2008 - 1:46pm.
I would try to put in a better system for the banks to be able to sell their foreclosures.
I currently have a situation where although it took me two Wks,and at least 20 phones calls I found the asset manager who was handling the property.
I have a cash buyer that would like to buy a 2,5mil house that Washington Mutual has to sell. My client is aware the last Seller is still in the property,and eviction is going on. Wamu first agreed they could sell to my buyer,but then wanted another appraisal,even thou they had just put this property out to bid at 2,571 on Aug22nd.
So in short,u have a cash buyer,who cannot buy a house then lender can sell???
How can we fix our problems,when we have situations as this. Bytw,my buyers bid is 2.5mil all cash.
Susan
Submitted by Derec Shuler on September 15, 2008 - 1:51pm.
The system and market needs to work through this. The current round of government intervention is postponing the eventual fall-out, which will happen. All the bailouts today aren't doing much for home owners but helping out investors. It's going to hurt but needs to happen so the economy will stabilize and we can grow again.
Derec Shuler
Blog.TheShulerGroup.com
Follow me at:
www.linkedin.com/in/shulerd
www.twitter.com/derecshuler
Submitted by Barton Hyde on September 15, 2008 - 2:02pm.
Barton Hyde
First of all lets look at what we have and realize that it can't be fixed! At least the way most people look at it, sure there's plenty of blame to go around. But as Merv Griffin said to the Donald after being bested by him, OK you win lets eat!
One of the great challenges I see as a 30 year RE broker is this:
The lenders and there helpers don't have a clue and you can't get the problem solved by sending these collection types after owners. Many of which would like to stay in their home but it's upside down. Instead of trying unrealistic modification programs lets use common sense! Wow what an idea, take a owner that owes 400,000 on a home that is now worth 275-300,000. Why not create a new contract that will allow the current owner to stay(of course there would be conditions) and pay on say a 300,000 amount at a fixed 5-5.5% rate. A new deed of trust as we use in my state could be structured to give the lender unlimited safety (including interest in the property)and when it is sold (specific regulation builtin the new deed of trust) with lender approval they would receive all or part of the funds over the 300,000 new base! Again this subject is to detailed to fully discuss here but the idea could save the lender additional cost, keep from flooding the market with reo's, and most of all keep the property in better condition and have the owner get a chance to stay in their home!
The last thing we need is for the lame brains that seem to be running things to find new ways to give away money to have new buyers that can't afford it to buy a home before saving for it!
Thank you,
Barton Hyde
bouldercity@realtor.com
Submitted by Doug Osgood on September 15, 2008 - 2:19pm.
"They no nothing" !!!!!!!!!!!!
JOBS JOBS JOBS JOBS
For years the news has been filled with job losses by the 100's of thousands in this country. Ten here 50 there 500 somewhere else and today HP 24,600 in the next 3 years.
In order to buy a home you have to qualify. In order to qualify you need a JOB. When will the leaders GET IT!
If we want to fix the housing we will have to employ people by the 100's of thousands. Why not a massive program to make us energy independent? Leadership with vision, where are you?
Submitted by Tami Swihart on September 15, 2008 - 3:16pm.
Jobs and a energy independent program are awesome ideas! Some things have been done already that will fix the problems with time. Income and good credit are imperative. Bye, bye liar loans! Downpayment assistance programs should be allowed with tighter regulation. Better laws on appraisal process. House prices need to be allowed to drop to be in line with median incomes. As long as house prices are so far above what people can afford there is always going to be a problem.
Submitted by Osie Brown on September 15, 2008 - 11:26pm.
A stimulus is needed that will significantly raise the credit scores of those people who have NOT faltered in their loans. Raising the scores of the diligent will give them incentive to continue to invest in this down market. This is a time to honor those people who take thier debt obligations seriously instead of those who bail because the consequences are tolerable.
Submitted by Jim Lee, Portsmouth New Hampshire Realtor on September 16, 2008 - 6:37am.
Get the federal government out of the way. Their track record for "fixing things" is well documented and it's a record of miserable and expensive failures.
Risk based pricing. If you have good credit, i.e. you pay your bills on time, you get a favorable interest rate; if not, you pay more.
Jim Lee, CRS, ABR, GRI, NAR Certified e-PRO Trainer
Realty Executives Associates, Knoxville, Tennessee
www.KnoxvilleHomeCenter.com
Submitted by William Metzker on September 16, 2008 - 12:57pm.
A public-private mechanism to buy up bad mortgages at a defined discount needs to be created, much as the Reconstruction Finance Corporation (RFC) was formed after the S & L crisis. This new "fund" should not bail out mortgage holders wholesale, but rather would put non-performing loans into a methodical workout pace as well as inventory the underlying properties for resale.
This process would take years to liqudiate the properties, as happened with the RFC, but at least some revenues would flow back to the institution and the taxpayers would see eventual relief.
The other result is that at least some fresh money would flow back into the system and slowly add liquidity. As it stands right now, the bad mortgages are just sitting there. It would be great if this "new" money flowed to first-time buyers in some way, because the market will not come back until the trade-up cycle begins.
The Feds did a great thing by nationalizing Fannie and Freddie, but it needs to make plans to re-privatize both with proper oversight.
Submitted by David Curry on November 15, 2008 - 6:41am.
I realize there are honest, hard working people who have fallen upon hard times, and are losing their homes to foreclosure as a result. People that wish they could pay their mortgages, but for one reason or another, be it medical problems, or a lost job, they cannot. To those people, this post does not apply. My take on the foreclosure "crisis" affecting our national housing market and more importantly our national mood is admittedly a bit of a cold one. I have written on this before, and the truth is that I do not believe this foreclosure crisis is a result of people falling on tough times. It's a result of people choosing to walk away from their mortgages. Follow me for a bit.
The mortgage note is a unique creature. You promise to pay the bank monthly payments, they give you money, and their money is most often secured ONLY by the real estate that you're purchasing. So the bank gives you the money in return for the right to take your home if you don't pay. This practice is built on trust, the bank trusts that you'll pay the money back. The problem arises when the American consumer breaks that trust and refuses to pay. If you don't pay, the bank forecloses on your home, but usually only several months after you've stopped paying them. Foreclosure is not bankruptcy. You live rent/payment free for upwards of 6 months while the bank works the foreclosure channel. You give them the house, they destroy your credit, and you keep any uncollateralized assets that you have. Your credit? Who cares. You're going to be a renter for a while anyway. You could literally have a $250k mortgage, $250k in the bank, and $50k worth of paid for cars. What happens when the bank forecloses? You give them the house that probably isn't worth the amount of your mortgage, you keep your $250k, and your cars. And now you can go to Cancun in January because that annoying mortgage isn't hanging over your head. Way to go American consumer.
The banks are creating their own problems as well. We all know about "short sales". A short sale is when a homeowner owes $200k on their home. They have a hardship and they get an offer to sell their home for $170k. The bank would have to agree to release the homeowner from the $30k worth of debt that the sale won't satisfy. The bank should do this. Do you hear me banks? DO THIS! But they generally won't. I've been involved in short sale closings this year where the bank has sold a home for $100k that they were owed $190k on. I've also tried to negotiate deals with banks that end up going nowhere. I had a homeowner owe $168k on a home. They had an offer of $125k. The bank said no to the short sale, and as a result that property is in foreclosure. I wouldn't be surprised to see that home sell, once it's an REO property, for less than the $125k that they were offered.
The problem as I see it is one that needs to be dealt with quickly, and not dealt with on a Governmental level. The market needs to self correct. It's trying to do just that, but our government just doesn't want to let it. Consider Obama's promised 90 day moratorium on foreclosures. The concept in this is that people will get their acts together, renegotiate with their banks, and start paying on their notes again. That's the concept, but that's not what will happen. People will just live in their homes, rent and mortgage free, for those 90 days, and all the moratorium will do is put a delay on the housing recovery by stringing out the foreclosure filings for another 3 months. There will be certain people who will take advantage of the 90 day freeze, they'll renegotiate their note, and they'll stay in their homes. I would bet that this won't apply to more than 5% of the pre-foreclosure loans. Remember, restructuring the loan means changing the amortization or the interest rate, but the bank still wants that money you owe them.
The other issue is that most banks are not willing to renegotiate a homeowners mortgage until they are at least 90 days late in their payments. This perpetuates the problem. Foreclosure notices were up 25% in October from October 2007. Why should this be surprising? Banks are forcing people into foreclosure before they'll be willing to renegotiate the loan. By allowing this to happen the banks allow more negative press for the housing market, which in turn drives prices and demand down, which in turn makes more people decide to stop paying their mortgages. Real smart.
Here's the Dave Curry plan to fix this. First, banks need to renegotiate any loans they can, and if they don't want to, get on with the foreclosure process. We need to flush this REO inventory out of the market as quickly as possible. The great news for Walworth County is that foreclosures haven't impacted us much at all. We're lucky. Perhaps by the end of 2009 we'll see the vast majority of this inventory out of the market place. Second, Washington needs to understand why this foreclosure boom is happening. It's happening because people are choosing to walk away (again, not all, but a vast majority) from their homes. If you owe $500k on a home that's now worth $300k, why keep paying? Valuation that was lost in 18 months might take 48 months to gain back, so why pay the juice in the mean time?
Washington needs to understand the psychology of what's driving this phenomenon, and until they do, they'll keep trying to fix a market that's trying to fix itself. If you want to make some shrewd investments, and take advantage of the market while it's correcting itself, call me. While Walworth County has had very few foreclosures, there are some out there that once REO will represent tremendous value, and I won't charge you $49.95 a month like RealtyTrac to get timely updates on the foreclosure market here. Consider me your own personal Lake Geneva Foreclosure Watch. You won't make a killing, but I can show you opportunities where you purchase for $90k, improve $20k, and sell for $150k. Don't get me started about finding 30% annual returns in the stock market...
David Curry
Geneva Lakefront Realty
49 West Geneva Street
Williams Bay, WI 53191
262-245-9000
www.genevalakefrontrealty.com/blog