This topic has been on the minds of many REALTORS® as the ongoing evolution of REO inventory held by both banks and the federal government evolves over time. Homes foreclosed on by former Fannie, Freddie, FHA, and VA loan holders now sit vacant and the government asked the real estate community for suggestions on how to handle it. Proposals range from renting the homes to selling them in bulk to investors. Personally, I don't like either of those suggestions as they either make the government a landlord (bad idea) or enable investors to make a fortune off the failure of the average citizen. I have a better idea and I'd like your input.
First, a little history lesson. The mortgage crisis was created when the federal government changed the banking regulations and encouraged loans to pretty much anyone. The banks, understanding the law, set up real estate agents and would-be homeowners with easy loans to sell homes to people who were marginal borrowers. In the mix of all this, there were a lot of people who had good jobs, fair credit, and could still make their mortgage payments. Those folks lost their jobs when the economy collapsed and ended up losing their house in the process. Basically - the Fed and the banks set these people up for failure. The banks got bailed out and the homeowner gets burned.
My proposal is this: sell all the REO inventory back to anyone who was foreclosed on
Who qualifies for this?
- Anyone who was foreclosed on who had a Fannie, Freddie, FHA, or VA loan
- They must currently have a job with
- Their income must be enough to cover the cost of financing rebuying a home with a mortgage up to 40 years
- They must not have lied to get their previous home loan
What the banks must do?
- All banks must participate in lending to these borrowers
- Underwriting guidelines must be based on income and credit alone (credit score must be 600+)
- No loan can be denied if the person can qualify on income and credit score
I'm sure there are more than a few details that should be spelled out on qualifying criteria. Basically, I want the Fed to right the wrong done to the American homebuyer. The real estate meltdown caused a 4% rise in rentals and now the market has shifted to investors who buy homes and turn homeowners into renters. While I'm absolutely in support of investments in real estate, the purchase of Federal REO inventory by investors seems like kicking the market while it's down. Let's get these homes back into the hands of real buyers.
What do you think?