This review and commentary is not intended to be a scholarly achievement. This is a quick and brief look at what is impacting the Real Estate Market. I will focus on:
- Homeowners who stay current on mortgage - Refinance
- Homeowners who are behind on their mortgage - Modification
- Buyers looking to purchase a home
- Banks/Lending Institutions
- Investors
1. Homeowners who stay current on mortgage
FOCUS: The Homeowner Affordability and Stability Plan was developed to provide refinancing up to 105% of the current market value for those stayed current on payments and have the income to support the debt. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac = impacting up to approximately 50% of all mortgages in the United States.
PROBLEM: DO NOT QUALIFY - Property values have declined a significant amount compared to the amount owed, placing the homeowner and the lender in a position of having in some cases a 50% loss on the original loan amount. Many Banks/Lenders therefore fail to support the plan because they lose to much money. Don't blame the Banks/Lenders because in their eyes they have a homeowner making monthly payments in a timely manner so why change, sometimes they offer a Modification and refer you to Loss Mitigation. Loss Mitigation review your file within 3 to 9 months then say you have sufficient income to pay, you just need counseling to reduce your debt.
OUTCOME: Some go as far as depleting their savings and retirement account then start to go late on making monthly payments and make a financial decision to abandone the home. Other save their savings and retirement account and abandone the home.
2. Homeowners who are behind on their mortgage
FOCUS: Those that do not qualify for Refinance whether severely late payments, in foreclosure, headed for foreclosure, income does not support payment or home value/equity issues does not support Homeowner Affordability and Stability Plan.
PROBLEM: Homeowners go behind in their monthly payment 2+ months with the majority within the foreclosure process. Referral made to Loss Mitigation for file review - a process that has poor structure (Lenders not sure what they are doing or whether or not they prefer to foreclose; Employees that are clueless and receiving mix messages from the Lender; Various Lenders having varying criteria regarding who qualifies and what options/terms the homeowner qualify for; Homeowners having no clue how to setup their file/paperwork so they Lender can review!!!) caotic and painful to say the lease. may take 3 to 6 months then say you have sufficient income to pay, you just need counseling to red - disappointing and discouraging to say the best.
OUTCOME: Homeowners are taken advantage of by all parties involved, including themselve due to a lack of knowledge. Homeowners give up and simply walk away. Foreclosure process completes before modification has an opportunity. Lenders push for a Forbearance Solution resulting in further damage to homeowners ability to stay within home. Courthouse flooded with foreclosure cases.
3. Buyers looking to purchase a home
FOCUS: Some buyers are either scared, think an opportunity is there BUT lets wait and see if prices get better, or looking for that perfect shortsale... Lenders feeling the pain of unperforming loans increase their criteria and reduce the loan approvals - tightening their standards and reducing credit.
OUTCOME: Slow sales and frustrated buyers due to slow turn-around times 2+months for Lenders to approve shortsale. Properties going into foreclosure end up vandalized and other Lenders refuse to provide funds due to condition. Credit criteria across the boards (credit cards and any/all financing alternatives are placed on hold... slower sales, continued slow down in business activity resulting in slower job growth, increased unemployment... resulting in a cycle of foreclosures and a lack of financing.
4. Banks/Lending Institutions
FOCUS: Increased Unemployment, Tightening Credit, Increase Foreclosures, Losing Foreclosure Courtcases; Refusing to Lend; Refusing to Modify Mortgage Terms, Lack Financial Stability - Lender want their money back and they are charged with showing a return on their investment. Their inability to mitigate their losses is resulting in a continuing downward spiral.
OUTCOME: Continuing cycle of Foreclosure - Instability - Financial Losses
5. Investors
FOCUS: Fear, Lack of Liquidity, Wait and See
OUTCOME: Cutting their losses and attempt to maintain what they have safe and sound until the market improves.
Key to all this activity is the Banks/Lending Institutions. The Obama Plan requires Banks to act but they are remaining on the sidelines and tightening their credit requirements while they squeeze the homeowner for every penny due to their inability to avoid hardship. My solution is the focus must not be on Loss Mitigation, we need to focus on Lose Avoidance through proactive measures that stop the cycle. The Banks methodology of "Mitigating Loss" results in a continuing cycle and does not produce empowerment of the homeowner or the economy.
We need to build a bridge that will take the Banks/Lending Institutions out of the loop so that the economy can stabilize, which in turn will allow for the Financial institutions to stabilize. While the Homeowner Affordability and Stability Plan has merit to inspire stability, with the Banks/Lending Institutions playing the primary role for implementation the economy will continue to lag. Stability can only occur through strength not status quo.
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