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Foreclosure Plan – Is this a Panacea or a Step in the Right Direction?

There was an article in this morning's Inman News Headlines by Glenn Roberts, Jr. entitled "Foreclosure fix: "'The Last Chance Mortgage' - How we got into this mess and how to get out." (You will only be able to access this link for free on 1/11/08.)

The article was in regard to John Vogel, Jr's. plan to not only solve the problem that we're facing but to go one step further.

foreclosure The plan is the best thing that I've read so far since we've been faced with this dilemma, but I see one major flaw. Let's first look at what the situation is. According to Mr. Vogel, "Two million homeowners are in danger of losing their homes" via foreclosure. What I am understanding is that he is proposing that the federal government administer a program that would refinance these properties facing foreclosure with a fixed-rate mortgage interest of 3.5%. The homes would be assessed at 80% of their current value and the homeowner in concession for participating in this program would give up any future profit from the home's appreciation.

The latter part is what is an issue with me. Yes, I do believe that for the help received the homeowner should pay in one form or another. But this then leads to the question, What incentive is there for the homeowner to keep up the property? I don't see many except for the homeowner to be able to keep the home and not risk foreclosure at this point in time and they would recoup their investment at sale.

The problem that I'm presently seeing is that many homeowners are willing to just walk away from their homes without regard to the financial and credit implications of a foreclosure. I've spoken with two people this week that are planning on such. I've even talked to them in regard to a Deed In Lieu of Foreclosure. One was possibly interested, the other didn't care. I'm sure what I'm seeing is not an isolated incidence.

I think this program has some great merit and is the best that I've come across so far, but I think we also need to possibly go one step further and maybe allow the homeowner to share in the profits at sale. Let's say limit it on a sliding scale depending on the house value, etc. or even just a flat percentage of the profits.

One point that I haven't mentioned so far is that the home property in question would be entered into a pool of affordable housing. Now some of these homes will most likely fit that criteria, I don't see homes in the upper price ranges fitting such.

mortgage I do agree with his opinion that a program such as this will free up capital. I further believe that it would increase consumer confidence and help propel the real estate market.

At the same time I also have a question if government intervention is the right answer. Yes, I can the benefits as written above. But the main question that comes to mind is, Will the lesson be learned? I'm afraid to say that even though it will by many, there will be many more that won't learn the lesson and will continue with the attitude - well they bailed me out once, they'll do it again. I don't think that this is far-fetched.

But at least it is a plan and a feasible one at that.

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Marc It Sold!

Posted by Marc Grossman, GRI - Greater Orlando Real Estate Broker on 01/11/2008 09:47 AM

Comments (12)

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Originally posted at: Central Florida Real Estate Blog: Foreclosure Plan – Is this a Panacea or a Step in the Right Direction?

12 Comments on Foreclosure Plan – Is this a Panacea or a Step in the Right Direction?

JAN

2008

Marc.... this is a tough one. I would hate to see anyone put out of their house. I didn't read the other article as of yet. But here is my problem. As you stated, I have heard some of the general public state what you had mentioned also. That people are willing to walk away from their house, not caring what happens to their credit.

My dilemma on this? Wouldn't this allow more mortgage holders now say, hey, I am going to let my mortgage go, so I can get that low rate of 3.5%. I think there could be ways to help, but shouldn't there be some string guidelines to this? I think this would open up the flood gates. What about those that make a good living, but live above their means? Should they get help also, just because they are going into foreclosure? This is a good, thought provoking post.

Marc: Great up to date information... tough situation for a lot of homeowners. Love the graphics!

MARC - This is an interesting concept, and I think that your idea of what to do can easily be implemented because there is already a program that uses this concept called Habitat For Humanity. Most of us just think of it as homes that are built for people with hardships, but the fact of the matter is that homeowners of Habitat homes have rules that they must follow. They must stay in the home for a certain amount of time, and as they stay in the home, and current with the payments, their equity builds on a sliding scale, thus creating an incentive for them to stay in the home for more years. It seems as though this program could use something like this instead of taking all future profits for a low-interest loan.

Jeff - Thank you very much. I've wondered about the same thing. On one hand I think many will be deterred from doing as you say, because they do not wish to lose any future property appreciation. On the other hand I see that there will be others that would forego any appreciation to get a 3.5% fixed rate. Like I said, there appear to be some very good aspects to what's being suggested, but it has to go much further.

Jan - Thank you! Yes, it is a tough situation for many, there's no two ways about that.

Adam - Exactly! I was basically thinking along the same lines and this can be easily administrated.

Marc...Many people are so willing to walk away because they are in a resetting interest only loan. With the amount of homes available now, and more coming soon, in a rental or lease option plan, they know they can save a few monthly payments and have cash to put down on a currently price adjusted home. And they will also save hundreds per month on this plan..I'm not saying I would do it, but what choice do they have.

Case in point...I have hard working couple with decent credit who bought in 2005..Beautiful home, then the market dropped. They were PROMISED IN WRITING they could refinance with the accumulated equity in 2 years, before the interest reset. Well the mortgage company is Kaput, and they were late on one payment...teaser rates went away, and the payment went up over 350...With the reset, it went up over 900. I cannot believe someone would ask a trusting couple to make a deal like this..Oh yeah..3 year prepayment penalty too..So, they are in a house that now is valued 50k less than what they paid, and the payments have doubled..On an interest only loan...I am putting them in a 4 year old home with 10k down for 500 less per month..option to purchase at todays price anytime in the next 3 years...This is what I see all the time..all the time...

Nice post, well conceived...but, in my opinion, its too little too late for too many

Marc... Nice money house... Was planning to make one of those last week and got busy, Guess I'll have to use plan "B" and roll up the bills to look like a log cabin so I don't look like I copied your idea.... :-)

Mike - I have to agree with you when you say that its too little too late for too many. That's really the sad part about all of this.

Dan - Copy away - I did! People might get the wrong idea with all of those rolled up bills anyway. :)

JAN

2008

Marc, I just did a post on Vogel's presentation at Inman's Real Estate Connect. It was certainly a novel approach, but I'm not sure that by removing all benefits of appreciation for the homeowner is a good idea. I just did a post on my listening to him speak you might find interesting.

Patricia - I read your post earlier, but didn't want to reiterate what I wrote here on a comment and besides thought that might be tacky.

JAN

2008

The problem with government-sponsored bail-out programs is they help too few people. It's politics. It sounds good, but when you get down to the nitty gritty, actually very few people qualify for assistance. I'm not against the government helping, but please, make it a real plan that actually helps real people.

Elizabeth - I've been totally against any kind of government involvement and don't disagree with what you have to say. And as you can see by what I've written, there are definitely some inherent problems with this. But this is also the best plan that I've seen anyway put forward.

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