The past year or so has produced a flow of programs from Washington DC aimed at “helping homeowners.”
Let me say up front, all I know about them is: 1) what I read in the government’s own manuals and press releases 2) what I hear taught in training seminars at industry conferences (like the recent “REO Expo” in Dallas), and 3) what I hear from my agent friends in the trenches–in some of America’s most distressed real estate markets.
What I hear about the homeowner rescue programs, in sum, is “bah humbug.” Agents say these programs reach only a tiny percentage of the distressed “underwater” and frequently unemployed homeowners in their markets. They also say that, too often, those rare few who are helped sometimes turn out to be people who lie about their income and assets because they hope to get taxpayer help–to get out from under a bad investment called their home (one that they probably paid too much for, or financed with terrible terms assuming home values would rise forever!
Please don’t get me wrong. It’s clear that many people who have been harmed in the tumult of falling housing prices were just people who wanted or needed to buy that “dream home” at the wrong time. This is always a killer in any investment market–whether its homes, stocks, mutual funds, or pork belly futures, there are always people who “buy at the top.” I have a bit less sympathy for investors in these markets who get burned. Investor information is out there–good quality and bad. Find good reliable information and you have a chance to sell at the right time.
But, the family home has been the American dream. It’s an investment all right, but one colored by a host of deep-running emotional needs and family folklore. People returned from World War 2 and wanted to start families and buy homes. The economy was on a major post war uptick. One result near where I grew up was Levittown, where affordable new homes were built very fast and stretched further than the eye could see, really for the first time in America. That was the 1950s. By the 1990s, government policy makers were on a path to raise the percentage of Americans who owned their own home dramatically. Low rates, easy-to approve-loan terms (many with budget-busting cost escalator clauses), and fast rising home values–it was a boom formula. The new home became “an ATM” for many. They refinanced at sinking rates, took out home equity loans and gambled on the future. They bought boats and cars, took trips, and generally cashed out. They got the big trip, but they lost their future.
If you bought in 2004-2007 you probably bought inside a value “bubble.” If you bought for 300K, refinanced and took 30K out because your home value went up 10% in 6 months, you spent your equity. You paid cash for the BMW but when your home’s value dropped from 330K back to 300K in the next 6 months, your equity went bye bye. And it got worse after that.
By 2008, the downward spiral was underway and we’re living in it still. Government programs are not helping. That’s where this article began, and it’ll end with some great words from a real estate agent in California who spoke with me recently about the HAFA program (Home Affordable Foreclosure Alternatives.) That agent said:
“HAFA and the other loan modification programs are merely smoke and mirrors for the politicians and by the politicians so they can pat themselves on the back…and I mean all politicians …Democrats, Republicans and all others in office.
Before HAFA, only 175,000 people ACROSS the Country were offered a loan modification. Here in (my city), I know of no one who received a loan modification out of the hundreds I’ve heard who have applied.
Since HAFA has been instituted, I see no change here. Whether it’s a GSE, Fannie Mae, or Freddie Mac (government guranteed loan) program, not one of my clients will qualify — because they are middle class people who own the local dry cleaners or the local restaurant. Their business has dropped 50-85%, they are struggling to keep their businesses and families together, they have spent all of their savings holding on by their finger tips….and now Freddie Mac wants them to have 6 months or one year’s worth of mortgage payments in the bank (to qualify for mortgage help)!!!!!
Is there a better way? Maybe, but nothing that will bring help quickly. What we need most are jobs. What we seem to be getting is a policy makers’ desire to “forgive” bad investments and compund the problem with mounting federal debt.
If there’s really a genuine desire to mortgage the future for the little guy–make the future standards tough, but the current terms for him very workable.
That approach bailed out some lucky big banks and insurance companies last year–while most of us stood on the sidelines and watched in amazement. It’s not happening for small homeowners. They’re angry. And, so are many of the real estate professionals who talk with those homeowners every day. Who can blame them?
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