With the recent stimulus bill just about inked, the new administration and Congress will begin focusing on a 'housing bailout'. My personal opinion is that a housing bailout done from Washington will be out of touch with what is really going on.
Here is what is being bandied about: working with banks to provide interest rate relief so that people can stay in their homes.
In theory, this sounds great; have the banks keep people in their homes by lowering their payments. In reality, this just seems to be like kicking a can further down the road. For someone who is out in the trenches doing Broker Price Opinions for banks as well as listing and selling bank owned properties; let me show you why a 'feel good' housing stimulus won't work.
As a Realtor working with banks, I do Broker Price Opinions. Upwards of 80-90% of these price opinions appear to be homes that NEVER had a payment made on their loan. You see, it was a great deal.....no money down, stated income loans (in the industry they were called 'Liars Loans') allowed anyone who wanted the American Dream of home ownership to get a home. The best part was that foreclosure laws made this a great opportunity to live 'rent free' for upwards of two years - one doesn't make a payment, it takes a bank twelve to eighteen months to go through the legal wranglings....and then once the house is foreclosed upon the 'owner' has a six month redemption period where they can 'squat' in the home. After that six months, the bank has all rights and the Sheriff shows up and moves them out.
So, if Washington passes another hundreds of billions of dollars to relieve the 80-90% of homeowners above, what are we accomplishing? Perhaps there should be a clause in the bill where relief goes to homeowners who actually have MADE at least one full year's worth of payments to qualify.
Either way, a Washington solution doesn't make a lot of sense as it seems to me that all we will be doing is sending money to banks, to 'renegotiate' loans, that a high percentage of will not receive a payment --- but instead the foreclosure process gets stalled another six months while the bank waits to see if the new deal will be honored.
Want to kickstart the housing market? Forget about the foreclosures. Offer a six month program for first time home buyers giving them 2% interest loans for the first five years adjusting 1% per year at five years up to a maximum rate of 6% (todays rate). Underwrite based on commonly accepted practices (credit scores, certifiable income, etc.). The 'bailout money' would be better spent on those prospects that intend to pay rather than those who received a 'free rent' deal due to poor lending practices allowing 'Liars Loans' to be handed out like candy.
Comments? Fire away!