Yesterday I wrote about...
Yesterday I wrote about some situations where a bank might be money ahead to foreclosure vs. trying to work things out with the home owner. In that light I would like to present my own plan for housing recovery:
2009 Jeremy Housing Recovery Plan
My plan would focus on stopping the bleeding of the housing sector and the economy by fixing the easy items first. No red tape, no complicated processes, just easy common sense solutions.
1. Banks would provide loan modifications to more delinquent borrowers, but with a twist: When the borrower agrees to the loan modification, he also signs a document giving the bank the right to foreclose with just 30 day notice if he defaults under the new terms. If the borrower will truly benefit from a loan modification then the bank wants to go that route most of the time- Foreclosure costs the lender an average of $60k. Currently most borrowers that get a modification still default, and the lender forecloses but it's 3-6 months later costing the bank even more money.
2. Banks would respond to short sale packages within 30 days. Right now, most lenders are swamped with requests for relief and thus cannot process requests fast enough. The result of that is two fold- The borrower often bleeds to death trying to make payments until they deplete all their assets only to find out the sale is denied and they'll be losing the home anyway. And the pool of buyers that will wait out a short sale approval is much smaller, thus reducing demand and causing even more downward pressure on prices. This hurts everyone.
3. Banks will not report negative activity to credit bureau's on borrowers who seek relief. What purpose does this serve? The banks are only encouraging more home owners to just walk away and leave the bank holding the bag- The exact opposite of what needs to happen. Banks need to engage their customers and work with them. The consumer will survive this economy but what about these banks? I don't imagine a Bank of America customer will deposit his paycheck in the same institution that refused to help him when he needed it.
Just to clarify, I'm all about capitalism and personal responsibility. The financial institutions that blew up have an obligation to clean up their own mess without any outside interference or added regulation. When they will not stem the bleeding, it only prolongs that pain to all of us.