"How Would 'House' Solve the Housing Crisis?"

By
Mortgage and Lending with Universal Funding Partners

There have been hundreds of posts about the current crisis of massive foreclosures.  Most of them focus on firmly pointing and shaking a finger at one of the parties of the real estate transaction.

I love watching the TV show, "House" on Fox.  I appreciate the way he handles problems.  He attacks them logically and methodically.  What would he do here?  Well, he certainly wouldn't waste time complaining.  He wouldn't devote any of his time or resources to whining about how this could have been avoided.  He would have his team working on ways to fix the problem.

We all know that mortgage brokers were offering risky loans.  These loans were being offered by lenders that set those risky guidelines.  Those guidelines were set by the amount of risk the wall street investors would take.  It's an old story that we all know quite well by now. 

So, what would Dr. Gregory House do?  Differential Diagnosis!  Time to get our whiteboards and black markers out.  Let's list the possible causes.

Mortgage brokers?  Let's get rid of them!  Wait a minute.  That doesn't solve anything.  The same loan products will be available to the consumer, they just won't have easy access to a mortgage professional.  That doesn't help anybody.  Besides, the market is correcting and those risky loans are no longer available anyway.

Lenders?  Well, the market is taking care of them.  Subprime lenders are almost extinct.  Prime lenders are adjusting their program offerings to match the new level of acceptable risk.  Higher credit scores and higher down payments are now needed. 

Investors?  The market is going to dictate what they do.  Mortgages are a less desirable investment, so the lenders have been forced to change their programs to make their product more attractive.

What we have learned is that it doesn't help to blame and remove any of these individual parties.  So, as "House" would wonder, what would cause all of these problems?  Anybody?

Let's look at the big picture.  It all comes down to risk.  Lenders took large risks and only now realize that they misread borrower's ability to repay.  What about the borrowers?  What if borrowers were less risky?  What if they managed their credit efficiently and made smart decisions?  What if they knew how to shop for a mortgage and what loan would satisfy their needs? 

I'm having one of those epiphany moments where the answer becomes clear.  Quick!  Start treatment right away.  One-hundred CC's of borrower education, stat!  needle

The government is going to waste a lot of time trying to "fix" the mortgage problems.  Let's divert our attention to educating the American public.  Let's show people how to create and stick to a budget.  Let's show them how to choose a credit card and how to shop a car loan and mortgage.  Let's show them how credit reporting works and how to use the bureaus' rules to their advantage. 

It will take some major overhauling, but we need to add these subjects to public education at the high school level.  We can't stop there.  The wound is too deep.  We also need to educate America's adult population.  Government funding can help us mortgage and real estate professionals set up free classes. 

These are deep fundamental changes, but they will heal the patient.  We can focus on the problem, or we can focus on the solution.  What will we end up doing, and what affect will it have on our future?

NEPA Mortgage

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Rainmaker
568,337
Pam Joffe
Solaris Realty - Tampa, FL
Kevin- Great analysis. I agree the market is going to correct it self in time, It is just I feel we are in  a period of overcorrection that is very painful.
May 04, 2008 12:30 AM #1
Rainer
18,951
Universal Funding Partners
Universal Funding Partners - Scranton, PA

I would agree with you and I think the overcorrection will get worse.  Lenders' guidelines are verging on paranoid.  The tight guidelines on stated income will result in the reduction of home values.  We just can't get people loans to buy those overpriced houses anymore.  That's a good thing.  The problem is that all the ARM's are coming due at this exact same time. 

What the market needs is lower prices.  What homeowners need are new loans.  This is the disconnect.  With lower values, we can't get them loans because they are over-equitized.

Thanks for the comment!

May 04, 2008 06:35 AM #2
Rainmaker
940,126
Brigita McKelvie, Associate Broker
Cindy Stys Equestrian and Country Properties, Ltd. - Lehigh Valley, PA
The Broker with horse sense and no horsing around

Great analogy, Kevin!  We are starting to see changes in the market already.  The housing frenzy of a few years back was way too rediculous.  It seemed as though everyone (buyers, sellers, real estate agents, lenders, etc.) was just looking at getting what they wanted, not caring what the consequences were down the line.  We live in a "gimme" society.  Eventually, the "gimme" will catch up and all will have to pay for it in one way or another.

BTW, I love watching "House".  One of my favorites.

May 06, 2008 12:41 AM #3
Rainer
18,951
Universal Funding Partners
Universal Funding Partners - Scranton, PA

Hi Brigita!

The availability of large mortgage balances at low monthly payments was the catalyst.  Like you say, everybody got what they wanted.  Sellers, Realtors, and lenders got high volumes.  Buyers got low payments.  That's why it escalated out of control.  Nobody wanted it to stop!

With lenders tightening up and realizing their responsibilites to shareholders, we're seeing a return to responsible lending.  However, like Pam said, there is an over-correction going on that is making it very difficult for responsible first-time homebuyers to get a mortgage.

Thanks for stopping by!

May 06, 2008 02:25 AM #4
Rainmaker
635,598
Leesa Finley
RED Properties - Wake Forest, NC
RED Properties - Raleigh NC Real Estate

He would order an MRI - of course! 

You have made a brilliant analogy and fortunately, at least iin my area, I have seen the beginnings of providing the solution instead of standing around and belly-aching over it.  Lets hope it continues!

May 06, 2008 02:30 AM #5
Rainer
18,951
Universal Funding Partners
Universal Funding Partners - Scranton, PA

Hi Leesa.

An MRI and a lumbar puncture probably.  Or maybe they'd just call it Lupus and call it a day.  :-)

I'm glad to hear that they are smartening up in your market.  Let's hope the politicians follow suit.  Over-correction followed by over-regulation could be absolutely fatal.

May 06, 2008 02:35 AM #6
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Rainer
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Universal Funding Partners

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