If you caught my CNBC segment the other day, I briefly mentioned the idea of eliminating a few steps in the process of getting a loan.
No More Banks or Mortgage Bankers Needed?
Since the federal government now controls most of the mortgage underwriting standards in the US anyway, let's try something new and less expensive for the consumer!
1. Combine Fannie, Freddie, FHA and VA into one agency. Make a set of underwriting guidelines that everyone can follow and be consistent.
2. Have the U S government guarantee every mortgage because of a small mortgage fee on every loan (like .25 of a point in fee, a la the NY mortgage tax). This way, if a loan goes into default, the balance of what is not covered by foreclosing is paid in by the fund.
3. Licenses, train, bond, background check and check up on loan originators. Then the licensees can originate a loan and have the government agency fund it directly. The Feds can then sell the loans off as new-age Mortgage Backed Securities to investors.
4. Currently, homes that go to foreclosure that are "rough" can only be bought, in cash, by investors. How about a program that gives people money to fix the home and a mortgage/inspection contingency so that homeowners can buy more homes!
5. Instead of the $7500 credit, how about a direct 5% down payment that is paid back over 15 years with 4% interest for the government. Then, if you default on the mortgage, your rate would go to 12% and it would come out of your tax refund.
This way, we can get people into homes with low down payments again, but with a real hammer if they don't pay!
6. We can offer a 100% program a la the way VA does it. Again, if you default, the top 5% would come from your tax refunds!
7. If a loan has to go to foreclosure, there will be a limit as to what a loan servicer gets (including legal fees) and when a loan goes more than 60 days, the servicing fee would be shut off unless certain guidelines are met.
We need the entire mortgage business restructured, streamlined and made more practical.
These items above get it going.
35 comments • Fred Glick • January 30 2009 06:12AMComments
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Never happen. To many folks in the agencies you want to combined will no longer be needed. To much money will be loss since we will not have o duplicate work.
Thanks for your post
Tony
Keep thinking Fred.
We still need to address the unintended consequences of negative equity.
The real estate industry has suffered a contraction of about 25-30% of market inventory and value - or more.
Until negative equity is addressed, neither the US housing industry or the world economy can recover.
Great plan, but too simple, the new bail out has over 200,000 new government jobs. I don't think Congress is thinking of downsizing or simple. We need to give Obama a new Congress to work with and put the current ones on the street.
Just what we need, a new government monopoly. Unfortunately, your plan will sound wonderful to many and we will take another step down the road to serfdom.
Thanks for the comments.
First, Tony. if we don't put together the new "box", we will never get things cleared up. If we all pressure our legislators, associations (mortgage and real estate), things can change. Why should I have to get separate approvals for FHA, VA, etc. It's silly.
Lenn, negative equity will dissolve when the supply comes on the market. Let's pay to knock some empty homes down in overbuilt areas and create jobs so there is demand again. Most people (probably about 90%) are not going anywhere and understand that equity only matters when they buy, sell or refi. if they are not doing any of those three things, then they can just stay put. But, Fannie and Freddie MUST have no appraisal streamline refinances to help save more homes. Lobby your Congressperson for that!
Charles, I agree. POTUS Obama needs to get people back to work within or without the government. In this day and age, we need public/private partnerships that work, are ethical, make sense and put a smile back on American's faces!
Cheers to all!
Hey Tim,
i hear ya, but not if I were in charge of it!!
Hey Tim,
i hear ya, but not if I were in charge of it!!
Sounds great but I am against anything that puts the federal gov't more in charge in our economy. Gov't is not the solution here but the problem. I like the out of the box thinking though! I'm not sure how we will ever make gov't smaller and how we will ever retreat from the spending this "bailout" bill is giving us.
Fred, love your thinking. At least your coming up with solutions instead of sitting on the sidelines whining about it.(as long as your passing it on to your representatives). I'm against giving the government more control. The more control the government has, the less freedoms we enjoy.
I like your #4 which would make it easier to buy 'rough' homes. I'm an appraiser and I've seen many instances when appraising foreclosed homes that $2000 to $5000 would bring a 'rough' back to acceptable. But many times a lender will not loan on a property with minor problems and won't let the prospective buyer repair the home prior to purchase.
Another point. The average home is owned for approximately 7 years. In more transient areas, my area for instance, the average home turns over avery 3 years or so. That means that over and over, employees who are transferred, layed off, retired, military transfers, CANNOT SELL due to negative equity.
Not everyone is able to just wait it out. Many will lose everything, everything because of negative equity.
The drain on our economy is incalculable.
great thoughts Fred. Any thoughts on providing a program for investors as well--a 1031 Exchange Extension for example? For those folks with the cash, give them an extra 6 month grace period to reinvest their equity. We need this group to start reinvesting again.
Fred, very interesting points. I like creative thinking. Problem with the Government is there is no accoutability or oversight. Right now they're handing out money and they don't even know what it's being used for.
I really like the fact your working on solutions and that's what we need. I don't have any faith the government solutions by themselves will work.
What would make me feel better is when we have a workable solutions with the private sector. One that encourages private partipation and government involvement decreases and disappears (if possible) over a short period (as possible) of time.
Wow, a lot of naysayers in the comments...I think people are very frustrated that our fearless leaders are powerless in the face of this mess. And that fact is also very scary.
I prefer seeing solutions come up from our ranks, the ones who know the business. Programs designed by legislators and their assistants rarely work. Look at Hope for Homeowners and plenty others.
Thanks for pounding the table with some out of the box thinking.
Fred - I agree with Patrick.. thinking outside the box is key in this environment. I think everyone should put the ideas out there so they can be discussed and debated. The folks who only have negative things to say need to step up and offer solutions as well. Or at least help to be part of the solution... interesting post and comments ! ~ Chris
Fred - Great post!!! I also liked many of your ideas and while I think that a lot more needs to be done, this would at least be a start. As for giving money to fix up rough homes? We have a program that does just that; it's called the FHA 203(k). This product has been around for years but for many years, I could never get one closed because of one thing or another - not anymore. This program is the perfect product for this market and it's much easier now to get these loans done now.
As for the investors being able to buy more than the requisite four financed properties? While I agree that investors may be a quick fix to get rid of some of the current inventory, I think we need to move slowly and carefully with that bunch. I don't know what your market looks like, but around here (SoCA), a large percentage of the REO and to some degree the short sales, are investment properties. These are properties where the tenants are getting *&^%$#@ but the landlord is walking away rather unscathed.
I don't propose we go back to the 10 property max but maybe increase the max four to six and put some of those tough guidelines you mention in place for these people. As for cash buyers, there has never been any limit, it's just when they buy it cash and then refinance it to the hilt 90 days later that we need to watch.
I don't really like hands on government involvement in the economy, but I like many of these. There does need to be basic regulation of the players, and increased education and licensing standards in the mortgage industry is needed.
Making the process more uniform and streamlined would eliminate red tape, make the process smoother and help buyers understand what they are getting. Choice is great, as long as the people selling and buying those choices understand the risks and rewards. One major problem the last few years is that so many people became "loan officers" who barely understood how Option ARMs and other programs worked, but they sure sold them to home owners who knew even less.
We need a consistent system of guidelines and a fair, sustainable way to help people buy first homes. I have long advocated a 100% FHA program much like USDA and VA. Make the qualifications tough (lower DTI ratios, higher credit scores) and add in more upfront mortgage insurance and risks (like your tax penalty) in exchange for the option of 100% financing. Bring it out into the open and quantify the risks unlike the DPA program and it will be much more stable and benefit everyone.
Of course it will never work.... people want to vote for quick fixes (or what sounds like one) and this would not help many of the current problems. It would prevent many from happening again and get things back on a good path, but how often have politicians gone for that over a good "housing rescue program" that they can do a sound bite for?
Jaime, excellent point on 1031 Exchanges. We advise on a tax code strategy that can help a client extend 1031 Exchange benefits beyond their 180th. Chris Princis
Wow! i am so impressed with the response from everyone.
To generalize to some of the comments, the government controls the mortgage market now and they also are the only ones buying the paper!
Having a public/private agency life Fannie and Freddie, but done right, would probably be the answer.
Let's all keep thinking and come up with a plan and who to take it to (Congressperson, Senators, NAR, NAMB, etc)!
Fred
All great comments and new ideas. I have to agree with some, the less the government has control over, the better for it's people and our rights. There are companies out there that own the properites they sell, no middleman with all the fees, no financing redtape. That's the way I'd rather go.
Are we Not Giving the Government more control with all of the TARP funds and the new 8 Billion pkg.?
OK, the first 600 billion is gone, an already corrupt administration is in charge (Hmm why do I need to pay taxes, oh hell I'm the treasury secretary, duh)....
Anything you do needs to go through NAR, if appraisers have a union, mortgage brokers have a union, insurers have a union, home inpsectors have a union; All these "professionals come together under one umbrella and ONE VOICE, maybe we will be heard. Look how many people are registered in AR, I believe over 130k, that's a voice folks, just bring it together and be heard!
We are in the trenches, the government is not!! They DO NOT know what is happeining to the average joe, I don't care what they say!
Fred, you made some great points as a Realtor/Mortgage Broker licensed in just about every state. "Lets all come up with a plan"....then what? You need a voice of many....
plan the attack and attack the plan!
Foreclosures need to be more easily bought by the average homebuyer, not bought for cash by investors. It should be easier to buy of foreclosures so we can get rid of them and allow home values to increase once again.
You know, it does take an idea to be heard in order for it to be possible -
thanks
I agree with everything you said except #5 -- I think it is not a wise idea to have a buyer purchase a home if they nothing to put down, it makes it easier to walk away -- which is why the 2nd part of #5 might stop them, but I'm not sure many people would agree to #5 - 2nd part.
I think your idea is out of the box thinking and we are at a critical juncture, so I would like to see this kind of brainstorming going on, but my guess is they will nibble around the edges and try and enforce more rules.
I have tried to get NAR and NAMB into a room and talk. Putting their legislative, communication and political clout together can get a lot done! As a member of NAR and NAMB, I have really tried, but their agendas are different and their vision is focused on smaller issues that they feel they can get accomplished.
Bigger solutions are not what they want to tackle since they need to play defense on items such as appraisers and banks in real estate.
Do we now for a group called REMPA?, Real Estate and Mortgage Professionals of America.
Who's in? What do we stand for and where do we get start up money to get lobbyists, publicists and staff? Seriously, we could have an overwhelming code of conduct and professional standards that would exceed any current organization and we would brainstorm (online, of course) and get our ideas out there via the publicist and lobbyist!
No national conventions in Vegas, no back room politics, just a smart, professional group of Pros that will try to drive home solutions!
The negative equity issue is paramount to getting this mess resolved. I really enjoyed your post--lots of intriguing ideas.
Fred,
A lot of interesting ideas.
I'm not convinced that the housing and mortgage market necessarily needs this type of comprehensive overhaul.
I think the biggest obstacles to a housing market recovery is stimulating demand and injecting confidence into the market. And I think the best way to do this is to repeal the Tax Reform Act of 1986 as it pertains to investment real estate.
I wonder if there is a way that we can get our elected officials to let the voters do the budget cutting? Maybe ballots with boxes to check for the programs we democratically decide to have in place? Here's my slogan.."Just Say No to Pork!"
http://www.house.gov/house/MemberWWW_by_State.shtml
http://www.visi.com/juan/congress/
I don't like it! You're basically saying to take away all mortgage brokers who make an honest living. What if we told you all Realtor agencies needed to be federally mandated into one entity and the agent would be paid .25% on all sales?
This is ridiculous!
Good luck buddy!
JD
Good morning, it's saturday and your comments have not stopped. I will make an effort to answer some of the comments from time to time, but you are welcome to call me at 215-852-4469 (my cell) to talk it out!
Mark MacKenzie- I assume you are talking about bringing back the accelerated depreciation schedules? That would be great, but we need people to have jobs to pay the rent so we can get property to cash flow!
JD- Not at all! What I am saying is that anyone that wants to originate jsut sell right to the new entity. In fact, mortgage brokers would be the biggest beneficiaries under my plan. Contact me for details.
Please keep the ideas coming!
Fred Glick
Fred, You are full of ideas!. Yes if the government is doling out all the cash, why not let them decide the loan process? Innovative!
Shortly after Barbara Corcoran appeared on the Today show saying the rates need to come down to 4.75% and the govt needs to step in to make it happen, they met and atrificially affected the markets in order to hit that mark. I'm not saying Barbara Corcoran made it happen, but it was said on the Today show and round aboutly happend. You've been on CNBC, perhaps Today show is the next stop?
Thanks, Shelly.
I have not been called by the Today Show yet and I really admire Barbara, but I think the Fed acts independently when it comes to decided to buy Mortgage Backed Securities!
Crazier things have happened!