I don't profess to know it all...in fact...on a daily basis I realize that the more I know, the more I need to know! So I'll start there, and I only ask that you do so as well. Let's keep our mind open to "possibilities" for the sake of discussion.
What I DO know (and it echo's daily) is that the present state of the economy leaves much to be desired. It's NOT working!
Everyone is grabbing at straws in this unprecedented situation that we all face. So let's just agree for a few minutes that everything has NOT been tried and tested. And what has...leaves room for improvement. The banks keep asking for more BAILOUT MONEY...and it's because they have NO IDEA what losses they will face in the foreclosure market. A house with a good mortgage is a "performing asset" to the bank. When no payments are being made it is of course a "non performing" asset. The banks have NO IDEA what losses they face because they don't know when the non performing asset will be off of their books.
So this financial crisis that the banks/homeowners are in...is my entire point. Bare with me here...
Let's talk housing crisis. Not everyone who is facing foreclosure bought a home KNOWING they couldn't afford it if the rates went up on the adjustable mortgage! They bought a home in good faith with a payment they could afford at the time. Many lost jobs or businesses and simply can't make the payment on what they receive on unemployment. God help them if they happened to be one of the individual self employed. You know them! The plumber, the insurance salesman, or yes...even The Realtor. The ones who don't qualify for unemployment and don't show up in the "statistics".
Supply vs. Demand is as much a victim as a culprit in the demise of a strong housing market. But even if no one takes the blame, the effect has been a loss in equity of as much as 30%.
So with no job and no equity, how is someone going to refinance to get the lower interest rates that our recently infused banks are willing to lend? It's NOT possible!
RESULT? Just when you thought you were in good hands..."Welcome Home...now comes the foreclosure"
So here come the "groups of investors" in record numbers to buy up the bargains! They offer the bank (via the distressed seller facing foreclosure) 50% to 65% of the listing price or mortgage balance, whichever is lower. Oh...and I forgot to mention...it can take the bank up to SEVEN...YES I SAID SEVEN MONTHS to approve a short sale!
I have a suggestion that I believe would drastically reduce the number of foreclosures, get the seller out of their home when they owe more than the home is worth...stop the slide in existing home prices...and limit the amount of loss that each bank or mortgage company has to absorb from each "non performing asset".
Banks--Rather than foreclose or take 7 months to approve a short sale for a new buyer consider the following: Make the loan assumable at a new interest rate. Go ahead...bite the bullet...agree and take a flat 20% loss on the principle.
Downpayment--Forget that! The bank shouldn't require that. Let the buyer use that money (5%) to buy furniture, upgrade the house (I'm thinking to help save jobs here)...or keep it in reserves for "a rainy day" in the event of a layoff. Yes...even an "owner maintained" reserve account where the owner earns interest wouldn't be a bad idea.
Results??
- Quick sale for distressed sellers to get out of payments they cannot afford and move on with their life
- No foreclosure cost to bank
- Bank has pre-set loss known in advance and subsequently turns non performing asset into performing asset with new owner
- Stops "investor groups" from getting homes at 50% of mortgage balance
- Prevents further slide in home market prices
- Prevents short sales from having open ended time lines
- Prevents sellers from losing buyers due to long wait on short sales
This is my solution...what's YOURS?
