A Possible Solution to the Real Estate/Mortgage Crisis

By
Real Estate Agent with Homebuyer Representation, Inc. DRE# 5467433

Million Dollar BillsI would strongly urge lenders, banks and investors to consider agreeing to adjust notes back to the start rate on the adjusting and ballooning mortgages (or the start rate +.25% or .50%).

Don't pay them any incentive or "bailout" to do so.

They made the bad loans or let them be made. Let them take some responsibility for those actions. The result would keep a huge number of people in their homes who otherwise would lose them, preserve the value of the collateral and help minimize future defaults.

True, the investors will get less return than they hoped. But they aren't likely to see their hoped for return on many, if any of these loans anyway. What is better, some return, or none? In real life, if you lend money to someone who you know likely won't pay you back, you usually get nothing.

Bailing out Banks, Lenders and Investors is the worst possible message that can be sent to the American Public. The American Public (Um. And the American Government) makes enough poor financial decisions on its own, without needing encouragement that someone will be there to bail you out for your poor choices.

Fiscal responsibility needs to be taught and practiced by the government and corporations, not just the American People.

There should not be a double standard:

  • One for the American people - "Too bad, you lose, you're on your own for the bad choice you made."
  • And another for the government or corporations "This stinks, here, we'll just print more money or increase the national debt to cover your stupidity."

Telling institutions they can ignore rational and reasonable practices and still be rewarded is ridiculous.

That's the same story these institutions were selling all those borrowers when they sold them into the loans they shouldn't have gotten into. It's time for everybody to put the greed away and sit down at the table to talk rationally and realistically.

A compromise that doesn't require a complete overhaul of the system would benefit all parties in the long term.

It would be an acknowledgment by all parties that "Yes. We made bad decisions. We all risked more than we were able to bear. We are all to blame. In consequence, we will all give or receive something worse than what we hoped (gambled) for initially."

  • Investors get: Lower return than they thought (Not too bad considering if people could refinance their places at lower fixed rates, a portion of this problem would have already been resolved.)
  • Lenders get: Fewer (questionable) loan products than they had before. (This has already happened, and is a GOOD thing!)
  • Borrowers get: A higher payment than their start rate, but one that gives them a "chance" to keep their home and pay back their loan honorably.
  • Future Borrowers get: To save up a down payment for a home, and to learn to use credit wisely and appropriately, thereby reducing the likelihood of another round of this "breakdown" occurring in their lifetimes.

Lenders and Investors should not be the only ones who benefit from a government bailout.

Borrowers need relief as well or any bailout will just be more money thrown at institutions who have proven they have a tendency to make bad financial decisions when the potential reward for doing so, however risky, is great.

I know this won't solve the entire crisis, but sitting down and looking for reasonable and rational compromises is better than just throwing money at the problem. Simply throwing money at it without a long term strategy that successfully addresses the needs of all parties involved will just make things worse down the road.

 

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If you have excellent credit and will be buying a $250,000-$750,000 home in the next 30-60 days and would like an agent who will work exclusively for you, call us at (801) 969-8989 or contact us via the link on this page.

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Rainmaker
505,960
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience

If the homeowner will contact loss mitigation, many of these banks will do a loan modification.

I am hearing about it happening more and more.

 

Oct 02, 2008 06:15 AM #19
Rainmaker
208,583
Audrey June-Forshey
RE/MAX Realty Services - Darnestown, MD
GRI, Gaithersburg, MD

I have said this to my lenders until I am blue in the face.  I am such a micro organism to the giant, greedy, investors.  I think if the homeowners that are paying on time and staying in their homes instead of foreclosure is a plus for everyone all the way around.  I know, in the big financial world there will something wrong with that, but just seems like common sense to me.

Oct 02, 2008 06:28 AM #20
Ambassador
890,780
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

I am with you on a large part of it, but there are two things I see...

  • The government all but forced many of these institutions to offer these types of programs through the CRA... they took the ball and ran, but that was after being told that they better get on board.
  • It also doesn't set a good precedent to have the government step in and change the terms on private contracts after the fact... makes people not want to enter into contracts in this country if they are subject to renegotiation after the fact. 
Oct 02, 2008 06:28 AM #21
Rainer
72,831
Karl Christen
Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT

Actually I came up with something a little different a few days ago...http://activerain.com/blogsview/715682/One-possible-solution-to

 

One of the problems of asking the lenders to just freeze the ARM contracts is that they would then lose the faith of their investors.  If it was that easy for the Bank to just freeze the ARM then it would be already done in most cases.  The problem is these are executed contracts by the Borrower the Bank, and someone who's investing in these mortgage backed securities expects them to be executed properly. 

Anyway, nice attempt at suggesting a solution, but the solution must do the following..

#1  Fullfill the original contract, either through the sale of the asset, or refinance of that asset.

#2  The investor must be made whole.  In other words, the bank cannot just write down or write off a percentage of the loan, without causing serious damage to its reputation with it's investors.  This is why your seeing the carnage right now in the markets.  Furthermore, Banks are not going to buy each others paper products if there is suspicion that the paper is not going to perform.  Another reason your seeing things slow to a crawl in the MBS market.  So unless the investor is guaranteed to be made whole, there is not going to be much of a reason for anyone to exchange toxic paper at this juncture, despite the fact that these asset's have some type of value.

#3  The borrower should not get a free lunch and neither should the bank. Everyone is thinking the auto industry is getting bailed out right now, but in reality they are getting low interest rate backed government loans.  The same should be offered to these financial institutions, which would allow them to modify current borrowers who are in risk of going into foreclosure.  Allow market writedowns to more manageable loan products and amounts, then keep the banks and borrowers on the hook to eventually pay the deficet at a more favorable time.

As one poster said already, common sense is something Senators and Congressmen lack, and it's probably too late for a COMMON SENSE solution at this point.

Oct 02, 2008 06:29 AM #22
Rainmaker
1,035,942
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Sounds like an idea that could be used.  Just find the right people to present it to.

Oct 02, 2008 07:16 AM #23
Rainmaker
92,484
Kevin Hawkins
Bainbridge Island, WA

I just had a customer call me today to give me an update on their loan modification with EMC. She was able to talk to someone in loss mitigation and they are offering to modify her loan. They are negotiating with the investor as it is a Jumbo Pay Option ARM.

I did NOT do this loan for her. One of my competitors, notorious on Bainbridge for screwing up people's lives, got her into this mess. $30,000 in neg am in one year.  Her plan was to get her payments lower and sell in a year. I had her in a 30 yr fix at 6%. She refi'd in June 2007 because this local lender became "her friend."

Having spent over 20 years in lending this is good news that her lender is being pro-active as she has NEVER been late on a mortgage payment and is still current.

There still are too many lenders out there that will NOT negotiate until someone is 90 days late and that is too late for many as their credit will be messed up for years.

Oct 02, 2008 07:39 AM #24
Anonymous
paula

Serious times we are in. All involved have my heartfelt sympathies...lenders and lendees alike. I am just very glad I was not tempted to take one of these on...was offered a stated income ARM loan for a first home purchase in 06. The mortgage guy was urging me to figure out how much more I could find to "state as income" so I could get into the loan! If I had "stated" so much at the time, I would certainly be in trouble today.

Oct 02, 2008 09:16 AM #25
Rainer
179,139
Mark MacKenzie
Phoenix, AZ

I agree that loan modifications are an important part of bringing some sense of stability to the market, but ultimately the excess supply of homes needs to be addressed and nobody is addressing this.

Until the ecxess supply of homes is absorbed, property values will continue to decline and the economy will continue to contract and lending will become even tighter than it is now.

I have proposed a solution to stimulate investment demand for real estate in an effort to absorb this excess supply.

Here is the web site:  www.HousingStimulusPlan.org

Oct 02, 2008 09:19 AM #26
Ambassador
920,196
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Ben, if you are following blogs of economist out in the blogoshphere, their are dozens of scenerios that would work besides this one. 8 million to research wooden arrows and other pork is in the bill. Frustrating.....

Oct 02, 2008 09:36 AM #27
Rainmaker
1,317,476
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

This enitre matter is quite complicated and I don't think we have the entire story.  I think what you have suggested is part of the solution.  However, I am concerned about the real inability of small business to get loans to meet payroll.  There could be a dramatic loss of jobs -- etc.  So, I would like to get some more information to make an informed decision.

Oct 02, 2008 10:17 AM #28
Rainmaker
247,053
Benjamin Clark
Homebuyer Representation, Inc. - Salt Lake City, UT
Buyer's Agent - Certified Negotiation Expert

Mark,

The problem isn't that there is a lack of housing. There is an oversupply of housing. Even those who lose their homes because of inflated payment obligations are still living somewhere in most cases. (Renting)

Sure, you can make the properties cheaper, but you also have to face the fact that there are just fewer incoming first time buyers. And if you pull all these "now" renters out of the rental market (where some of them should have stayed in the beginning), you could introduce a crisis for landlords.

I understand that doing nothing and letting the free market play out sounds disasterous. (And could be.)

We never should have arrived at where we are today. Loose regulations, Foolish business practices, short term thinking. Add in greed and those are the culprits.

Introduce some "emergency" plan may be necessary. But the big picture of how we got here should not be ignored. Just like everything else that goes awry, getting back to common sense and the basic practices of industry will go a long way to getting things back on the right path.

I'm not saying help isn't needed, but we should give help coupled with caution and advice. Throwing money at the problem without correcting the behavior makes us "enablers" and only encourages and creates like problems in our future.

 

Oct 02, 2008 10:33 AM #29
Rainmaker
247,053
Benjamin Clark
Homebuyer Representation, Inc. - Salt Lake City, UT
Buyer's Agent - Certified Negotiation Expert

Missy - The problem today is all the pork, isn't it?! Can't they focus on one thing at a time? Especially when it's as critical as this? Politics as usual...

Oct 02, 2008 10:36 AM #30
Rainmaker
247,053
Benjamin Clark
Homebuyer Representation, Inc. - Salt Lake City, UT
Buyer's Agent - Certified Negotiation Expert

Joan - My proposal isn't meant to be a "final answer". All I wish is that politicians and businesspeople would stand up and accept their role in getting us to where we are today. The first company that takes out a full WSJ ad telling everybody they are sorry they contributed to this crisis but they are going to help "fix" it (and not by asking the government to bail them out) will really earn some respect. Somebody has to stand up and say, "We were irresponsible. We know exactly what we did that was wrong. We're sorry. Here's how we are willing to sacrifice to help fix it."

Will that happen? Unlikely, but it would be nice.

You are absolutely right when you and others say my suggestions will not solve the crisis. 100% correct. But it might just help some families and communities, and lenders and companies...

Remember the story of the starfish?

One day a man came across a boy on the beach who was picking up starfish from the shore and throwing them into the water. The tide had washed up starfish by the thousands, all of which would die outside of the water.

The man asked the boy why he bothered wasting his time throwing any starfish back at all, "After all," he said, "there must be miles of beach with millions of starfish. You can't possibly save them all. Your efforts aren't really making any difference at all."

The boy picked up another starfish, threw it back into the ocean and said, "I made a difference to that one."

The market is made up of a bunch of people. With enough people determined to make a difference, great things could happen. The question will be if the corporations (banks, investors) are willing to help contribute to the solution with action.

starfish

Oct 02, 2008 11:02 AM #31
Rainmaker
449,857
Vickie McCartney
Maverick Realty - Owensboro, KY
Broker, Real Estate Agent Owensboro KY

Benjamin~ I agree with your approach.  We aren't solving anything by simply bailing them out!  Vickie

Oct 02, 2008 11:32 AM #32
Rainmaker
600,424
Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

Took time to get in the mess and it will take time to get out.  This happened because people wanted to make money and exploit the system. The larger problem is government spending and how its pulling too many dollars from the economy then couple that with no energy policy that will work.

I have been in the same house for over 30 years since I did not want the debt.  Then I have to pay the debt of others. 

Oct 02, 2008 12:12 PM #33
Rainmaker
571,668
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Benjamin,  You certainly are right about all of us needing to get back to some sense of responsibility. I hope there will be some examination of the basics to your post.

Oct 02, 2008 12:16 PM #34
Rainmaker
49,922
Jason Berman
JBerman Group - Frisco, CO
Summit Countynulls Mortgage Guy

The notion that there is a 'quick' fix to all this is false. Everybody who wants a quick fix helped contribute to the problem that got us here in the first place. There is no shortcut in life. We need to understand how we got here before we address fixing the problem. 

To suggest that lenders go back and give up their profit and offer re-negotiated start rates is just putting lipstick on a pig. The folks that took these loans had every opportunity to understand what they were getting into. Some may not have understood and yes there is an issue, lenders need to spend more time educating their customers. However, to blame the lenders and take away their ability to make a profit will do nothing for the long-term health of the industry.

I ask you this, who would lend if they knew when the worst happened, the borrower was entitled to re-negotiate? What about the people that do pay on time? The ones that carry two jobs to pay their bills? Where is the equity in that? I say let things fail. Let people lose their homes. Let's get some pain and suffering because then people will try to understand how we got here. And then we will come up with real solutions and we will really learn from these tough times and we won't be destined to repeat it.

Love the idea, but it won't work. And it certainly isn't fair to the lenders. Consumers need to take responsibility for the things that they sign. Bottom line. End of story. Until consumers learn how to teach themselves fiscal responsibility, they will continue to be led astray and be taken advantage of....

As an aside, I'm sickened that the fat cats who took huge pay and huge pensions are getting bailed out. Their greed is disgusting and shameful. And I hope the American public is loud and resolute in finding ways to end the pilfering of our treasury from those that don't deserve it's benefit. JB

 

 

 

 

 

Oct 02, 2008 02:25 PM #35
Ambassador
1,023,277
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

While there is no perfect answer, that is a solution worth considering.  Hopefully it's somewhere in that 400+ pages...

Oct 02, 2008 03:00 PM #36
Rainmaker
325,871
Esko Kiuru
Bethesda, MD

Ben,

The way the bailout plan now looks it is to help investors and lenders get back on their feet and largely overlooks homeowner needs. You are right, the bailout should be more even-handed.

Oct 02, 2008 03:57 PM #37
Rainmaker
885,951
Maureen Megowan
Remax Estate Properties - - Palos Verdes Estates, CA
Palos Verdes Real Estate Blog

This so-called "bail-out" does not reimburse lenders for their losses in making these loans. They are only going to be purchased by the government at their current highly discounted value. The plan is only to get fresh capital in the hands of the lenders so that they are in the position of making new loans. The lenders will still have to recognize any losses that are incurred by selling these loans. This is not bailing out the rich!!!! It is recognizing the fact that for whatever reason, financial institutions are stock with billions of dollars of delinquent loans which they had no way of getting rid of or recycling for new capital to make new loans.

Oct 03, 2008 09:17 AM #38
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Buyer's Agent - Certified Negotiation Expert
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