FINANCIAL RECOVERY
THE ANSWER
 

A simple approach that will help many families in despair with mortgages more than their homes are worth, a HUGE jump start to our economy that will put back to work most who are laid off along with the creation of jobs and a stop to the loses Banks are having by the foreclosure phenomenon by stopping the escalating foreclosure rate. 

editorial:

  Everyone seems to have an opinion on the subject from one solution to another, so I figured why not chime in on the subject. Below I have sort of summarized why we are in the situation we are in and I have a very simple plan I feel will pull us out of this catastrophe we were put into. I thought of this idea in the beginning of 2009 and only wish I could have done something. So I am posting this now. You know what they say, better late than never.

  Well, it’s been over a year since the collapse of our financial markets and a lot has happened since then. We have given billions to the banks in a form of a bailout. Many more Americans have lost their homes due to an inability to pay their adjustable rate mortgages, housing prices have tumbled and our elected officials have done little to nothing to try and stop this calamity that has befallen our Nation’s (in my opinion) number one prime economy driver the real estate market. This I feel is where all the effort should have been placed at the very beginning and we wouldn’t be in this mess. However, I guess there is nothing you can do when you have such a rich and powerful special interest such as the Banks and the Banking Lobby pulling all the strings. It has become very apparent our elected officials (many of them, not all) are nothing but puppets to these interests because of their desire for re-election and all of the special perks that go along with it.

  Ok, getting off track. It’s funny, not really, it’s sad that the people in this Country have such a short term memory. In the beginning to middle of 2005 I told my wife that our Fed Chairman Mr. Bernanke was single handedly going to bankrupt this Country. At every Fed meeting the interest rate was raised. Now, you have to realize, in the residential appraisal industry we are VERY rate conscious “edit(due to us being Real Estate Appraisers) and watch this like a hawk. The prior Fed Chairman Mr. Greenspan started the move with just a few rate increases due to the rates being very low near the end of his tenure and wanted the rates a little higher so the new guy would have some wiggle room.

  Wiggle room isn’t the word, the Fed raised rates 18 straight times, here is a report after the 17th time on MSNBC http://www.msnbc.msn.com/id/13615923/ns/business-stocks_and_economy/ Mr. Bernanke, what were you thinking? It is obvious; the Fed didn’t even consider the effect this would have on 80% of the housing market that was encumbered by Arm’s (adjustable rate mortgages). I guess now we know and to boot we re-hired him.  “edit(this 80% I found on line & was unable to substantiate it. However, additional numbers were found: By 2006 26% were adjustable and in 2006 45% of all mortgages created were adjustable rate mortgages.)”

  Now, considering the real estate market is the largest part of this Country’s economy, wouldn’t you think it would only be logical to fix the problem? It was the real estate disaster that brought everything else down like a house of cards. Nothing will get back on track until the main engine of our economy is back and running at full steam. That is were my plan comes into play.

  It was the beginning of 2009 with all the talk of stimulus this and stimulus that I thought of (what I think) an excellent idea to snap this Country out of the tank and to get back on track very quickly. It all started with a rapid increase in interest rates and the Arms’ adjusting to their new higher rates that created the debacle in the first place. This is due to most people figuring when my rate adjusts we will make a payment & refi. Well, after 18 interest rate hikes the adjustment doubled to tripled & the home owner was unable to make the payment. As more and more people panicked, they put their house on the market to sell and eventually there were not enough buyers for sellers. Thus the snowball began. So, last year my thought was instead of spending the billions on the banks, spend them on the people.

  Hear is a breakdown of the main problems/situations. What you have are people that love their homes and don’t want to move, people that don’t have any money to spend to help our economy thus layoffs, banks that want to make money and after a foreclosure are saddled with a property they don’t want and end up loosing even more money. What has perpetuated the decline is simple economics that is happening all over the Country. If someone has a home with a $500,000 mortgage and a similar house is foreclosed on across the street then becomes available for $250,000 the person with the $500,000 mortgage will by the $250,000 home and let the $500,000 mortgage go into default & go bankrupt. Until the markets across the Country stabilize we will continue to see this deterioration within the largest sector of our economy. It also may be possible to see what the economists are starting to talk about is a double dip which would be a prolonged and possible an even greater decline in our economy.

  As I said before, early last year I came up with what I thought would be a great solution to fix our economy. This solution would benefit everyone involved and put the Country back on the road to prosperity. Nobody wants to leave their home they worked so hard for and love. So by stopping the foreclosure phenomenon, we would turn around not only the entire economy, but increase consumer confidence along with the people feeling they are back in control of their lives.

  This can be done in any neighborhood in the Country. If you purchased your home after let’s say 2002 or refinanced since then you are eligible. This would only apply to owner occupied homes. I am not a math scholar, so I’m sure there is some cut off point after a certain period by making mortgage payments you should have some equity. You would get a one time opportunity to be used within a 1 year time frame to have your house appraised for present market value and be able to take out a new mortgage at 100% of that value. The balance of the original loan would be paid via Bailout so the Banks and investors would not loose. This would solve so many issues that are present and put us well down the road to recovery. “edit(this will not help me personally due to the region in which I live and work did not have a steep decline. In fact it was a very minimal if any decline).”

  This solution would STOP the high rate of foreclosure. As I said nobody wants to leave their home. Let me give an example. Mr. & Mrs. Doe who live in Anytown, USA has a home they bought in 2005 for $650,000 with a mortgage for $550,000. Now, as of today, their home is only worth $250,000. Their mortgage payment on $550,000 P&I only @ 5.5% for 30 years would be $3,122.84. If this same couple were offered a reduction in their principle these people would not even consider leaving their home, their new mortgage payment would be $1,419.47 which would give Mr. & Mrs. Doe an extra $1,7033.37 per month of spendable income that more than likely find its way back into the economy which would increase demand for goods which will lead to the creation of jobs in turn will jump start our economy more than any stimulus plan even considered. Oh, I forgot about the banks. If Mr. & Mrs. Doe leave their, what has become $250,000 home, after all the legal fees, time spent from foreclosure to finally reselling, the banks have lost revenue. Additionally, that $250,000 home will probably end up selling for about $150,000 to $175,000 when it is all over.

  So, as I see it, this is a win/win situation. The American people are helped where they need the help. Our Country’s manufacturing engine starts to run back at full speed due to consumer confidence and the extra income available at the end of each month for the typical American family along with the Banks not loosing as much money as they would have if the original home owner would have been forced to move by the property going into foreclosure. Additionally, with the stoppage of foreclosures, the Cities & Towns will once again begin to see property values rise. “edit(Also to note, with the drop in unemployment the Government revenues will significantly rise which eventually will pay for the program. Additionally, with the rumors of additional Fed intervention with T-Bills try to lower long term rates, this is all well and good but, it wont help due to the Banks presently and also no doubt in the future not willing to lend the money back to the American public who lent them the money in the first place.”

This is only a short summary of my plan. I believe that if a plan like this would have been initiated in the beginning, there would not have been such a devastating effect on our economy. Banks would have their money and the 100+ banks would not have gone under. The American public would feel confident in our leaders. The unemployment rate would fall dramatically by the consumer having more monthly income to consume and thus the Government would increase their revenue due to less unemployment and increased tax revenue.

Whether we like it or not, Real Estate is the catalyst for consumers to consume via equity. Until this returns, the consumer will not consume.

Considering the Real Estate industry is the largest industry in the Country, it would only be logical, by fixing this problem will have the largest impact on this Nations economy.

Regardless of whatever plan is initiated for the existing foreclosures, without stopping the continuing defaults by what I proposed above, the problem will continue with values dropping, high unemployment, Bank failures, low consumer confidence and associated problems.

As far as the foreclosures that are currently on the books, with all the homeless and displaced people due to loosing their homes, a program of rent to own could be a possible answer on a number of fronts. First, it would give affordable housing to the many who need it. Also, the Government will earn an income on an asset/liability that is sitting vacant. If the tenant could eventually be able to purchase the property as in a lease purchase, the properties should remain in relatively good to average condition. Additionally, since the foreclosures are off the market along with stabilizing and stopping the creation of new foreclosures as outlined above, the market will bottom, stabilize and turn around and start to appreciate for the home owners to start to see equity in which they again will be able to tap into for consuming.