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October 17, 2011

Real Problems, Real Solutions

Michael Kurtianyk

As this country continues is slide toward a double-dip recession (some would say we’re already there), it’s time for our government to address the falling housing market. It is true that all real estate is local: what this means is that what happens in Frederick, MD, is different than what happens in Austin, TX, or Cleveland, OH.


However, there are some things that are true throughout our country since the housing market started falling a few years ago. They are as follows:


Foreclosures and short sales.


Due to the tough economic times, what with companies downsizing and some even disappearing, many homeowners have not been able to keep up with their mortgage payments. The banks, as lien holders, are obligated to work with the homeowners and try to modify payments, or, if this isn’t possible, put the house on the market in what is called a “short sale.”


What you end up with are two markets. The first market is represented by the regularly-priced homes, put on the market by owners who are moving because their children no longer live there (“empty-nesters”); job relocation; or because their family has grown (via children or parents). The second market is made up of short sales and foreclosures because the homeowners couldn’t continue keeping up with their payments.


While this type of split market is common, the problem occurs with those buyers who made offers on homes that are listed as a short sale or foreclosure. The banks drag their feet replying to offers as they come in. Ask any REALTOR® who has represented buyers who’ve written offers, and that REALTORS® will tell you that it takes weeks, and sometimes months, for a response to come back from the lien holder. The delay is compounded when there are two lien holders attached to a property.


Buyers become frustrated with the process, and end up walking away from many of these properties. The effect is that buyers miss out on other properties, and, if the bank doesn’t reply, then the house will keep sitting on the market unsold.


What has to happen is that the U.S. Department of Housing must step in and, through regulatory fiat, force banks to respond more quickly to offers as presented. Someone within the bank’s system has to make the decision to accept, reject, or counter each offer received. This will be tough, because if the bank’s representative accepts an offer that is less than what is owed on the house, then that representative will be blamed for losing the bank’s money (and, in turn, could lose their job). However, why waste everyone’s time by failing to make a decision? Why not stimulate the economy through quicker decisions, and negotiating in good faith with potential buyers?


Lending practices


During the housing boon, many buyers fell victim to predatory lenders and unethical affiliates, including REALTORS®. As a result, lenders became more stringent in their borrowing policies. While this was a good thing, the pendulum swung too far in the other direction. Some banks are requiring 20 percent as a down payment on loans, which can be difficult for many. This is overly restrictive, especially for the self-employed.


Also, the government, when it comes to lending practices, must get out of the way when it comes to two lending practices: down payments and mortgage interest deductions.


First off, the government must end the imposition of the 20 percent requirement as a criterion for a qualified residential mortgage. On a $300,000 house, not many have the $60,000 minimum to meet this requirement. We can relax this rule, for the greater good of stimulating our national economy.


The government must also get out of the way by ending discussions to curb mortgage interest deductions. If there ever was a time for the government to instill consumer confidence, and get things going, this is it. Our leaders must cease and desist the discussion about reducing or elimination mortgage interest deductions.




Leaders must make decisions and push through legislation that lifts the burdens on people trying to refinance. Rep. Dennis Cardoza (D., CA) suggests that homeowners be allowed to refinance without an appraisal.


His bill, known as H.R. 6218, is called The Housing Opportunity and Mortgage Equity Act of 2010. This would benefit the homeowners who are under water (the mortgage owed is greater than the value of the home), through Fannie Mae or Freddie Mac. In order to pay for this, the old mortgages will be paid off when refinanced. The new refinances will be funded by selling new mortgage securities.


Sen. Johnny Isakson (R., GA), agrees with this, and added that loan limit adjustments shouldn’t be enforced, or fees added, in those cases. Furthermore, Senator Isakson called for allowing underwater home owners to use money from their retirement accounts to help them stay in their home rather than lose it to foreclosure.


There is no one silver bullet when it comes to solving our housing crisis. However, a bi-partisan approach by clear-thinking leaders is the best solution to moving forward and getting our economy back on track. The housing industry is an important part of this.


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