Thursday, January 31st, 2013

My Proposal to help the Housing Market

The forecast for the near future is cloudy with a chance of a tornado.  Inventory is building and the last 3 months have shown lagging sales, falling prices, and increasing foreclosures across the nation.  What can we or the government do to help the housing market?  Should we apply a new homebuyer tax credit?  I think not.  Should the Fed buy more mortgage backed securities?  Ehhh…

Do you know that in the state of Florida, of all of the foreclosures, nearly 60% of them are due to strategic walkaways?  This is going to be the hottest thing since Gisele Bundchen.  Homeowners in local markets that have seen a substantial drop in their home value are opting to just ignore the mortgage statements, save some cash and walk away from the house.  The concept is the result of not wanting to throw good money after bad.  Can you blame them?  Well….  Is it fundamentally or ethically the right thing to do?  If you asked me 5 years ago, I would say no.

Regardless of my opinion, this is going to happen in droves.  Ok, so two wrongs don’t make a right, right?  Voluntarily walk away from your home and now you can’t get a mortgage for 7 years.  Due to the massive amount of foreclosures that have hindered this economy, do you think it is time to change the guidelines to ownership following a foreclosure?  The fundamentals of underwriting a mortgage is going to have to change if we are going to help this crisis.  So I have the following suggestions:  FYI, I don’t see this happening for 2-3 years if something like this happens at all.

  • Previous foreclosed homeowners are allowed to apply for a mortgage 2 years after the foreclosure execution IF that foreclosed home was their primary residence only.
  • The standard 45% back end debt to income ratio remains.
  • No late payments on any active tradelines for the last 24 months.
  • Must have 2 years employment.
  • …….and all the other current guidelines

Primary Home Ownership is what will help this recession.  Yes, we need a job surge, but if we can take all of the former homeowners that are still employed and put them into a new home within 2-3 years as opposed to 7 years, it will do its fair share of help.  The Catch 22 of this will probably be that this will act as an open invitation for anyone to just walk away if they are deep underwater.  What are your thoughts?  Is it even worth it to do something like this or would it effectively and negatively alter the historic fundamentals of home ownership?

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