If we’re going to spend more money on giving a bunch of CEOs and public officials more on the job training, let’s make sure we spend it in the right places. Otherwise, lets just keep government out of business.
Modify Mortgages Now
Experts around the world recognize that the “real estate bust” is the underlying reason for much of our global economic crisis. These fiscal hardships, and the lagging recovery, are the result of terrible leadership within companies, no regulation, horrible risk management and bad decisions on the part of everyone, even consumers. Only a handful of people can truly say they played no part in getting us where we are today. I’m the first to admit that I said buy, buy, buy for way too long, that enthusiasm about buying a home should have ended LONG before homes sales dropped off.
Lenders, home builders, the government, investors, analysts, consumers, the media, and your friends and neighbors are all responsible. The amount of blame each role deserves varies…if you said nothing and knew what would happen, aren’t you still at blame? We’re in this mess as a nation, and as a nation, we need to make sure that we support a solution capable of working. I propose we stop fooling around with these billion dollar experiments and get to the heart of the problem, foreclosures.
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Foreclosures decrease home prices, wreak havoc in neighborhoods and increase the supply of homes on the market. They are a plague that represents the root of all housing problems; they are quickly killing any hope of a quick recovery. Low confidence in real estate, low levels of new and resale home sales, falling home prices and high inventory levels are all symptoms of the plague, fighting these symptoms will not fix the problem. Modifying mortgages and making mortgages more affordable is costly, but it will fix the problem and relieve the symptoms. Until we modify existing mortgages, nothing drastic is going to change.
What is the Modify Mortgages Now Program? It’s an initiative to get congress and senators to redo the Hope For Homeowners Act and make it work. Why pass something that fails?
Fix Housing First Proposal – good but not enough…
If we focus solely on reviving the new home market, we will throw hundreds of billions of dollars at a symptom of a larger problem. Foreclosures will continue, overall inventory levels will remain high, and home prices will continue to decline. For the new home industry, this solution will amount to nothing more than a short-term fix, and who wants that? The proposal may prolong some job-cut announcements and bankruptcy declarations, but it will not lay a foundation for long-term growth. The only thing that can ensure a strong and stable real estate market is fewer foreclosures; foreclosures make it impossible to establish a home’s real value and keep inventory levels high. The Fix Housing First Proposal will briefly stimulate demand and it may increase the amount of home buyer’s that are willing and able to purchase a home, but it won’t be enough to turn the market around as it only addresses a symptom.
Without modifying home mortgages, we won’t see a decrease in foreclosures anytime soon. In October, the Wall Street Journal reported that nearly 1 in every 6 Americans, or nearly 17% of homeowners, owes more on their home than it’s worth. For some, this negative equity may amount to less than $20,000; others are negative by hundreds of thousands. As time goes by, and foreclosures mount, home prices will continue to drop and negative equity will continue to swell. A percentage of that 17% will choose to walk away from their home because maintaining a “good” credit rating isn’t worth the negative equity, and other homeowners will be forced to walk away because they can’t make monthly payments. Modifying mortgages won’t ensure that all foreclosures stop, but the modifications will make bank assets carry less risk, mortgages more affordable and home ownership more attractive.
The Fix Housing First proposal brought forth by the new home industry worked well in the past; it deserves support. However, it alone is not enough, remember the Hope for Homeowners Act, it’s already passed, approved for $300 billion and is expected to help 400,000 homeowners, only problem, the program hasn’t offered many homeowners hope. As of mid December, the Hope for Homeowners program received only 312 applications, the long list of the program’s failures range from the unwillingness of lenders to participate, to high borrowing costs. Lenders aren’t eager to reduce mortgage principals and eat the loss, but holding on to a bunch of high-risk loans is like slowly bleeding to death, right?
The Hope for Homeowners Program has potential, but it needs a little work to get the ball rolling, how ineffective would it be if we slowly modify a loan or two…it would have no effect, the efforts have to be large scale. Regardless of whether or not you’re for the Hope for Homeowner’s Program, or against it, contact your senators and tell them what you think, that’s your job, if you’re for the program, pressure them to make the program better, that’s their job. While you’re on the phone, if you support the Fix Housing First Proposal, mention it too.
Don’t forget to mention that both programs need regulation and accountability…they don’t seem to get it.
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Part of the problem are the banks. Some still think its business as usual. Homeowners carry plenty of blame as well, getting mortgages they knew they couldn’t afford. I think this would be a step in the right direction if they made some changes and helped streamline the process.
@Charles – I agree that banks and consumers are a large part of the problem. Banks don’t want to lose tons of money, I think they’re waiting until someone announces that there won’t be any more government intervention. As of right now, I’m sure many of them hope that the government will take the majority of the lose.
As far as consumers, many of the homeowners I talk with relied on professionals to make the decision for them (as with any investment), and in most cases, the professionals were wrong. Consumers definitely share in some of the blame, but I’m not sure how many people would turn down an investment opportunity when two or three (agents, loan officers, builder agents, the media “experts) different professionals tell them that they’ll make a killing on real estate.
I think most of the consumers that opted for an ARM were told by professionals “Don’t worry, you can just refinance in a couple years”.
The bill is passed so a few changes (if possible) would certainly streamline the process. We can’t modify just over 300 loans nationwide and hope it does anything.
Its rediculous that loan modification programs even exist. The moment the financial institutions realized that adjustable rate loans were going create such a mess they should have immediately put a stop to the adjustments and kept them fixed at the entry rate!
With everything coming out, I personally feel we have a bunch of incompetent CEOs running these banks.
@Derek, I can’t agree with you more. I’m not sure why any CEO, except Jamie Dimon (Chase Bank), still has their job. They failed miserably and should have been fired years ago.
Many of them still get huge bonuses for running their companies into the ground – what a joke.
I totally agree Derek. How could they not realize that allowing mods to their ARMs years ago would not only benefit them but also the economy as well? It is amazing how these guys still have jobs.
I agree with Charles that we face a lot of problems because of whats happening to the banks right now. If that wasn’t an issue we wouldn’t be this deep.
“I think most of the consumers that opted for an ARM were told by professionals “Don’t worry, you can just refinance in a couple years””
@JaysonNHS I think you are exactly right. Mortgage professionals and yes, some Realtors thought that prices would just continue to go up. Another major problem is the amount of denial going on with CEOs. Taking millions in bonuses while Rome burns. Buying corporate toys, lavish redecoration projects, the list goes on. That same sickness has infected regular America as well…consumers aren’t off the hook either. That kind of corporate spending in the face of bankruptcy or bailouts should be considered criminal. At the minimum, shareholders should be outraged and remove those CEOs that are detrimental to the growth and security of the company.
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@Charles – I think we may be friends
The CEOs of these companies that failed should be fired. (that’s it – no more conversation about it) – Their job was to run the company and they failed miserably, they should be fired. What CEO gets 2 chances to ruin a company? NONE exactly – it’s absurd. Every day they walk into work is absurd.
LOL – did you see that Jamie Dimon (chase) and Kenneth Lewis (I think) (BofA) invested like $11.5 million of their own money in their companies? This was done to show their confidence in the companies. Only problem – it was done after they realized they ran company’s that weren’t allowed to fail. They did it only after there was no risk. Just cheezy…
Unfortunately I don’t think that consumers are educated enough and the lenders who teach their asset managers how to pick on consumer weakness is going to hold this back. There are tons of plans that have the potential to be a great bailout but there is a dead-lock. I don’t like the fact that defaulted loans can modify when the good-paying customer cannot until they damage their credit score by defaulting first. They force them into a refinance.
I have a friend in Montclair, NJ that is trying to refi. He is a school teacher and makes an extra 12k per month in extra carricular coaching jobs. They don’t know if he will be on coaching staff this coming year, so he called the bank to ask for a modification to today’s current rates. They kept him on hold an hour, declined it and said to go late on payments first. Stupid stupid
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Yes, I think there are some sharks in the water when it comes to loans but dosen’t the responsibility ultimately fall on the consumer. I just have a tough time saying all this is the banks fault. Consumers should have enough intelligence to understand what they are getting into and not just believe what they are told. Yes, I do blame the banks and consumers but the national media seems to be putting all the blame on the financial institutions. If you are a consumer, take responsibility, learn from your mistake, and actually understand what you are getting into next time you sign off on the biggest investment in your life.
The ability to modify mortgages is absolutely neccessary (and the current leadership realise this) to making debt repayments flexible enough to allow homeowners to keep up with payments, and hence keep the debt from being written off.