A grass-roots plan for mortgage workouts

There isn't a shred of common sense to any idea that seeks to prop up housing prices at levels that are still too high for incomes and sound credit deals.

I'll echo what Marcus said, the problem is home prices are too high. The solution is not to artificially prop up prices. The solution is to let prices fall. No one is going to be homeless. Anyone who loses their home will rent, and they will rent something they can afford, so they will be able to put their finances in order. Then, in a few years when home prices are down another 20, 30, 40%, they will be able to buy a home they can afford.

But, politicians (and current homeowners) don't like falling asset prices. So they come up with inane plans to futility attempt to prop up prices. Problem is, you can only fool the Market for so long. No legislation will prevent the on going collapse in real estate prices. All these plans will do, at best, is delay the collapse. And that will just make the future correction that more painful.

Best line of the post " The review process would assure that assets are properly priced". The proper price for an asset is what it can get in the current market whether it be by foreclosure or other method. Mark to market, the faster people accept this the quicker we'll get through this charade of overvalued home prices.

I'm in agreement with both Marcus and John. I'll add this: The current first mortgage is probably the same size as the adjusted one PLUS the new second. What makes anybody think the homeowner is going to be able to afford payment on the second mortgage in three years?

Why can't politicians, home owners, and bankers see beyond their own nose and anticipate the unintended consequences of any effort to maintain home prices at an unaffordable level?

The market forces at play are weighted against any prediction that home prices stay at the current level. Mortgage rates were at an all-time low - and inflation is kicking up right as investors in MBS start to recognize an increased risk in those securities. So interest rates will likely rise. Unemployement is creeping up and almost every day the Boston Globe reports additional layoffs - and unemployment is likely under-reported due to the large number of 1099 employees that are currently out-of-work or marginally employed. Tax burdens will likely increase as state and local governments - through the mandate of their citizens - attempt to maintain the same level of service on smaller sales and income tax revenue. Food prices are predicted to increase 7% over the next year (and food prices are not included in the official Cost of Living produced by the BLS, so that increase is not included in Social Security payments), and we still have a collection agent knocking on our door.

In short, as a collective whole, are flat broke. We as a country simply can't afford homes at the current price. Any method to maintain home prices at the current level - regardless of well meaning intent - will end poorly. But it will be fun to watch.

Are the people commenting on this post the only smart people around. A;though a big shot over at Harvard's Real Estate department just said similar things.

Housing is too expensive when compared to (stagnant) wages.

The government can pay mortgages for as long as they want, but the second they stop paying, people are going to lose their houses because they paid too much for them. Just the talk of a bailout is keeping prices high on the irrational expectation that it is going to solve anything.
jo

Thank you for responding with your thoughts regarding this proposal. I can certainly understand the frustration and trust issues.

I agree with you that house prices were high and remain high in certain areas of the US. We should consider why prices escalated to the point they did. Non Traditional (Toxic) Mortgage products that were created by “Wall Street Firms” and “Big Banks” then marketed to nation of “non licensed residential Mortgage Loan Brokers/Originators/Loan Officers” (I will refer to them as sales force) open credit for mortgage loans to many consumers who otherwise may not have qualified. The increase demand (new qualified consumers) created a short supply of housing, thus driving up prices. The products that were sold to consumers were not in the best interest of the consumers or investors.

The process of creating and rating these bad products lacked transparency to the consumer, the investor and to the sales force selling them. PLEASE BE CLEAR I am not in anyway defending the “predatory” lending practices of “some lenders” that used misleading advertising, lack of education to their customer or the lack of accountability and/or integrity. My only point is why were they ever allowed to sell the product in the first place?

House prices have deteriorated with the hardest hit areas being affordable housing. One goal of the plan is to “stabilize” housing at it’s current level so the market can recover and hopefully regain some lost value.

Ř Stabilization will help those who purchased and owned homes.
Ř The drop in housing values over the past few years should help new consumers looking to buy.

The major goal with regard to this program is to restore retail and institutional investor confidence, boost consumer spending and stabilizing housing. Investors have lost trust in AAA grade mortgage investments. This was caused by various non-traditional (toxic) mortgage products (Stated Income/Asset, No money down, marginal credit, Option ARM, etc.) being mixed into complex investment vehicles and rated AAA.

This plan questions how infusing money into banks will fix the underlying issues and the plan objects to the modification of mortgage loans. I do not feel either will restore investor confidence and non-standard qualified modifications do not appear to be a long-term solution. This proposal will restore investor confidence by using an existing infrastructure of experienced, licensed professionals to evaluate all adjustable and delinquent mortgages. The toxic mortgages will be replaced with borrower qualified fixed rate mortgage loans. In addition borrowers who are not delinquent will be able to move to a fixed rate. This proposal recommends the Government Sponsored Entities (Fannie Mae, Freddie Mac and FHA) allow for a non-limited cumulative “loan to value” second for loans originated in the same period as stated in the Home for Homeowner program (H4H). In 2007/2008 Non-traditional loans disappeared, as did many lenders that built their business on non-traditional products. Traditional underwriting standards were instated in 2008. Therefore performance of agency MBS will return to AAA. Since the US government has already advanced funds to distressed banks, we should work to assure their success. The proposal ask the Government consider guarantying NEW Fannie Mae and Freddie Mac loans that were underwritten and qualified under the traditional standard full document guidelines. Flushing out non-traditional loans and replace with transparent full document qualified loans should give Investors confidence (International and Domestic) to reactive the MBS market thus bringing capital into the US. Regarding the seconds, some second mortgages can be packaged and sold in a secondary ABS market, some seconds can be carried by the existing investor (vs. debt forgiveness as required in the H4H or modification), or consideration can be given to fund some seconds via sale of Government Guaranteed Bonds.

With regard to comment of banks and lenders looking past our nose. Again, I can certainly understand the lack of trust. Keep in mind many Americans across the USA cannot get the attention they need and we need an experienced national force of licensed professionals to pitch in and help. Supply (number of individuals working for banks that have the necessary experience is limited) and demand (the number of homeowners in need of assistance) must be addressed.

I ask you consider that in 2007/2008 changes in State / Federal licensing have put many of the companies that advertised and focused on non-traditional products such as Sub prime, Option ARM loans and high LTV loans out of business. Lenders that have always focused on standard mortgage product are still in business. My proposal calls for “ALL” HUD FHA approved lenders “coast to coast” that have been approved with HUD since 2006 assist with the crisis. FHA was flooded with new lender applications when sub prime product was no longer available. The American public deserves attention from LICENSED professionals that have always focused on standard mortgage product.

I am suggesting a solution that uses licensed; seasoned professionals and cautions homeonwers that are being marketed by “newly formed” loss mitigation companies that are “advertising and focused on capturing distressed homeowners”. Specifically “loss mitigation companies” that require the homeowner pay an fee up front.

HUD approved licensed lenders will be monitored and given specific guidelines approved by the Government. The lenders will do an analysis with no service fee and will submit a proposal to the bank holding the mortgage note to payoff or restructure the loan.

I welcome an alternative to omitting lenders from this process. This is a National Crisis that needs immediate attention. As stated in my article, the large banks “Home Retention aka “Loss Mitigation” aka “Loan Servicing” departments cannot accommodate the demand.

My intent is for the proposal is to be fair to the taxpayer and investor while helping distressed homeowners.

By restoring investor confidence, we create liquidity needed by consumers and for the business owners that provide us jobs. We boost consumer spending by putting consumers in a mortgage they can afford. Consumer spending will create jobs.

Opening dialog to hear the great ideas of many will help us find a workable solution. I appreciate your thoughts and value your opinion.

Thank you for responding with your thoughts regarding this proposal. I can certainly understand the frustration and trust issues.

I agree with you that house prices were high and remain high in certain areas of the US. We should consider why prices escalated to the point they did. Non Traditional (Toxic) Mortgage products that were created by “Wall Street Firms” and “Big Banks” then marketed to nation of “non licensed residential Mortgage Loan Brokers/Originators/Loan Officers” (I will refer to them as sales force) open credit for mortgage loans to many consumers who otherwise may not have qualified. The increase demand (new qualified consumers) created a short supply of housing, thus driving up prices. The products that were sold to consumers were not in the best interest of the consumers or investors.

The process of creating and rating these bad products lacked transparency to the consumer, the investor and to the sales force selling them. PLEASE BE CLEAR I am not in anyway defending the “predatory” lending practices of “some lenders” that used misleading advertising, lack of education to their customer or the lack of accountability and/or integrity. My only point is why were they ever allowed to sell the product in the first place?

House prices have deteriorated with the hardest hit areas being affordable housing. One goal of the plan is to “stabilize” housing at it’s current level so the market can recover and hopefully regain some lost value.

-Stabilization will help those who purchased and owned homes.
-The drop in housing values over the past few years should help new consumers looking to buy.

The major goal with regard to this program is to restore retail and institutional investor confidence, boost consumer spending and stabilizing housing. Investors have lost trust in AAA grade mortgage investments. This was caused by various non-traditional (toxic) mortgage products (Stated Income/Asset, No money down, marginal credit, Option ARM, etc.) being mixed into complex investment vehicles and rated AAA.

This plan questions how infusing money into banks will fix the underlying issues and the plan objects to the modification of mortgage loans. I do not feel either will restore investor confidence and non-standard qualified modifications do not appear to be a long-term solution. This proposal will restore investor confidence by using an existing infrastructure of experienced, licensed professionals to evaluate all adjustable and delinquent mortgages. The toxic mortgages will be replaced with borrower qualified fixed rate mortgage loans. In addition borrowers who are not delinquent will be able to move to a fixed rate. This proposal recommends the Government Sponsored Entities (Fannie Mae, Freddie Mac and FHA) allow for a non-limited cumulative “loan to value” second for loans originated in the same period as stated in the Home for Homeowner program (H4H). In 2007/2008 Non-traditional loans disappeared, as did many lenders that built their business on non-traditional products. Traditional underwriting standards were instated in 2008. Therefore performance of agency MBS will return to AAA. Since the US government has already advanced funds to distressed banks, we should work to assure their success. The proposal ask the Government consider guarantying NEW Fannie Mae and Freddie Mac loans that were underwritten and qualified under the traditional standard full document guidelines. Flushing out non-traditional loans and replace with transparent full document qualified loans should give Investors confidence (International and Domestic) to reactive the MBS market thus bringing capital into the US. Regarding the seconds, some second mortgages can be packaged and sold in a secondary ABS market, some seconds can be carried by the existing investor (vs. debt forgiveness as required in the H4H or modification), or consideration can be given to fund some seconds via sale of Government Guaranteed Bonds.

With regard to comment of banks and lenders looking past our nose. Again, I can certainly understand the lack of trust. Keep in mind many Americans across the USA cannot get the attention they need and we need an experienced national force of licensed professionals to pitch in and help. Supply (number of individuals working for banks that have the necessary experience is limited) and demand (the number of homeowners in need of assistance) must be addressed.

I ask you consider that in 2007/2008 changes in State / Federal licensing have put many of the companies that advertised and focused on non-traditional products such as Sub prime, Option ARM loans and high LTV loans out of business. Lenders that have always focused on standard mortgage product are still in business. My proposal calls for “ALL” HUD FHA approved lenders “coast to coast” that have been approved with HUD since 2006 assist with the crisis. FHA was flooded with new lender applications when sub prime product was no longer available. The American public deserves attention from LICENSED professionals that have always focused on standard mortgage product.

I am suggesting a solution that uses licensed; seasoned professionals and cautions homeonwers that are being marketed by “newly formed” loss mitigation companies that are “advertising and focused on capturing distressed homeowners”. Specifically “loss mitigation companies” that require the homeowner pay an fee up front.

HUD approved licensed lenders will be monitored and given specific guidelines approved by the Government. The lenders will do an analysis with no service fee and will submit a proposal to the bank holding the mortgage note to payoff or restructure the loan.

I welcome an alternative to omitting lenders from this process. This is a National Crisis that needs immediate attention. As stated in my article, the large banks “Home Retention aka “Loss Mitigation” aka “Loan Servicing” departments cannot accommodate the demand.

My intent is for the proposal is to be fair to the taxpayer and investor while helping distressed homeowners.

By restoring investor confidence, we create liquidity needed by consumers and for the business owners that provide us jobs. We boost consumer spending by putting consumers in a mortgage they can afford. Consumer spending will create jobs.

Opening dialog to hear the great ideas of many will help us find a workable solution. I appreciate your thoughts and value your opinion.