The Mortgage Mess
I think by now, we all know about the mortgage crisis in our country. Many homes have gone into foreclosure and more will follow. Blog after blog have told the reasons for this problem, but just to recap:
- Lending guidelines were too loose.
- Fraud was committed.
- Housing prices rose at unsustainable rates.
- Regulators were asleep at the wheel.
As I wrote earlier this year, it's now time for the blame game! Or even better, the it's the other guys fault, not mine game. Why is it when a problem arises, our first response is to point fingers?
Solutions
Don't get me wrong, I recognize this is a serious problem and people will go to jail! I think we have to find the reasons that led up to this crisis to make sure we are more vigilant in the future. But the more we point fingers, the less we spend time fixing the problem! My philosophy has always been "let's fix it now, and then find out why it went wrong and work to keep that from happening again."
So how do we fix the problem? First and foremost, stop overreacting! Government interference is not going to solve the problem, only compound it. Like most , let the market correct and solve it's own problems. Many states are legislating Stated Income/Stated Asset loans out of existence. Why? The lenders are already cutting back dramatically on this program. This may not be popular to say, but this documentation type of loan, when used correctly, is a great program for self-employed borrowers. The problem came about when lenders let lower credit score W-2 employees with low or no down payment take advantage of this loan. Stated Income/Stated Asset came about to minimize paperwork for your best borrowers out there. You know the ones I mean, high credit scores, low loan to values, demonstrated a high regard for credit over time. Two years ago, the company I worked for offered 100% (80/20) stated income financing to borrowers with a 620 credit score and minimum trade lines. That's a recipe for disaster! Don't throw out good loan programs, just go back to higher standards for those programs.
Tighter Loan Guidelines
Speaking of higher standards, it's getting ridiculous how hard it is for a decent borrower to be approved for a conventional mortgage at a good interest rate. Sure, if you have a high credit score and low loan to value and you'll get a good rate on financing today. But if you have a 675 credit score and a low down payment, you might not even be approved for private mortgage insurance! And if you are, the interest rate you will be offered is much higher than market rate. We'll really solve the glut of foreclosure by making them unaffordable for the average person! Come on! People have to buy houses to get us out of this downturn in the economy. People need mortgages to buy houses. It looks like FHA is the only way to go for the average first time home buyer. Come back to center on guidelines and it will help sell homes.
Economic Stimulus
So above I said government interference isn't going to help. Well you and I know, in an election year, congress is going to be all over this issue. And since we can't keep them out, let's have them do some real good. Give a tax rebate to everyone buying a home. Make it a real incentive. Bowing under pressure from all sides, Congress gave us all nice economic stimulus checks (see my previous blog). What a waste of money! Is our economy better thanks to this rebate check? The latest news is more bail-outs by the government. There's talk of another rebate check! Wow we really learned our lesson there! Forget about giving money to every tax payer. Give it to people buying a home. Rebate every new home purchaser with a $10,000 check after closing. That $10,000 will see it's way into the stores and the economy. If you want to stimulate the economy, you have to stimulate housing sales.
Is this going to solve our problems, no! We have a long ways to go, but let's at least get on a track and hopefully let's get on the right track! Right now, all we are doing is putting our fingers in the dyke, that is, when we're not too busy pointing our fingers at the other guy.
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