Investors needed to pick up the slack
Letter to the Editor
By Inman News, Tuesday, January 27, 2009.Re: 'Banks to unleash flood of REOs' (Jan. 26)
Dear Editor:
I found this article to be quite interesting. However, I must take issue with the premise that the "way out" is to get these homes fixed up and into the hands of new homeowners. While this premise represents an ideological panacea, it doesn't quite reflect reality.
In large part, in many lower- to middle-income neighborhoods, homeownership was made obtainable to those who were neither prepared economically nor with the proper knowledge to become homeowners. It must be understood and also be socially acceptable to acknowledge that there are citizens who are comfortable being renters, and to move them from this comfort zone is to place an acceptable burden upon them.
I suggest that the failure of many loan modifications is not only that the principal value of the mortgage wasn't reduced but rather that the mortgagee was not capable of accepting the challenges of homeownership. FHA's loan mod programs have from the beginning worked to reduce the principal balance and yet the resulting defaults remain.
The only reasonably responsible approach to absorption of the oncoming flood of REOs into the marketplace is to work with neighborhood and regional banks and to use government monies to augment the assets currently used for CRA (Community Reinvestment Act) programs and grants. These funds should be made accessible to investors who have demonstrated ability to purchase these properties, bring them to standard, and provide quality affordable housing to the community.
In reality, the home pricing we are seeing today is a return to the period of 2003-2004 when property values were still based on underlying demographics and affordability to the community in which the property was located. The onslaught of the speculative "get rich quick in real estate" mentality created an imbalance that certainly was not sustainable. In addition, during this time a looting of rental apartments took place with the flood of condo conversions. While inflation raged in property values, wages and rents remained stable. These circumstances led to disproportionately inflated values that created a situation where it was difficult if not impossible to invest in a residential property for its cash flow.
Irresponsible and speculative investing brought the real estate market to its knees. Opportunity abounds in today's market for those who look to build a quality real estate portfolio of cash-flowing residential real estate. Investors who have lost money in the financial markets have a real opportunity to recoup some of their losses while at the same time build an investment portfolio that will provide a monthly income to create or supplement their retirement. Investors provide the hands and the tools to provide quality housing for all at rents that work for landlord and tenant alike. The only obstacle is a lack of appropriate funding in the form of acquisition and rehab financing. Hopefully our new administration will work to bring that money to those who will pick up this gauntlet.
Stacey Maxwell
Classic Investment Community
Orland Park, Ill.
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Submitted by Emmanuel Scanlan on January 27, 2009 - 5:22am.
Exceptionally well written and very much on point!!
Emmanuel Scanlan
PS Inspection & Property Services LLC
www.psinspection.com
Serving the Dallas/Fort Worth area
Knowledge is power, but sharing knowledge brings peace!
Submitted by Steve Hicks on January 27, 2009 - 8:55am.
Stacy, your are right on target! Get the regulatetors out of the market and the buyers in the market! Any buyers! Let free enterprise cure this mess at its own pace. Allowing these problem loans to be assumed by any one willing to pay the arrearage and step up to the plate as owner would save thousands of forclosures. At the same time creating a positive market for all buyers. Going back many years we REALTORS sold 50% of our listings via the simple assumption. Sure there are some pitfalls with this, but the progress would well be worth the risk.
Submitted by Tom Teece on January 27, 2009 - 11:51am.
Great letter, Stacey.
A lot of people feel the same way. And in my experience as an investor, I have found that some foreclosures are in fact a direct result of "Irresponsible and speculative investing".
But by no means is that "The" answer to how we got here. Many elderly people in my community (my parents included) owned their homes outright but needed to refinance their homes for medical or other important reasons. Many more mortgages currently in default were issued prior to the housing bubble and speculative investing. And let's not forget what happens to a family's house payment when the head of household loses their job, as occurred over 2 million times this past year.
We are all in this mess together. Some of us hold a prejudice toward banks, investors, realtors, or homeowners "not capable of accepting the challenges of homeownership". Each foreclosure has a unique cause, and set of options for resolution.
I may not be able to solve our national foreclosure crisis. But I will continue to help one family at a time, based on their unique circumstances and options.
Best regards, Tom
Submitted by Stacey Maxwell on January 27, 2009 - 2:41pm.
Thanks Tom,
You are so right about who is in foreclosure. It truly is a broad cross section of people, many of whom are inadvertantly paying a price they would not have to if the we had not exprienced an aberrant market. I used to get so mad when they would unilaterally discuss the sub-prime market. Some of the loans were bad, but no more so than in the regular mortgage arena. The loss of Alt A loans, those that didn't require a person to be a wage earner and have W2 earnings, have hurt so many in real estate. If you are a real estate investor, or just a real estate agent, it is next to impossible to access a mortgage today unless you have a realtionship with a local bank.
The unfortunate truth is that there always have been and always will be foreclosures that result from life's challenges. Thankfully in stable economic times these occurrances are few and far between. Prior to the previous administrations assault on debt relief for the "little guy", many of these circumstantial occurrences were addressed through the bankruptcy courts and allowed for a person to keep their home. Ya, just gotta love how during the boom years there was an assault on the average person's abilty to protect what they had worked for through the courts with "Bankruptcy reform". How ironic that those same interests who sought to keep you or I from having the protections of the court system are now going to the government asking for our dollars to keep them a float. What's wrong with that picture?
Yes one property at a time, one family at a time, we can rebuild the communities that have been ravaged. Each small real estate investor is hiring locally, purchasing locally, and providing housing locally. So, where is our share of TARP money?