What's the best way to sell government REO inventory?

By
Real Estate Broker Owner with Catarra Real Estate, Inc CA BRE #01191946
http://actvra.in/k66

This topic has been on the minds of many REALTORS® as the ongoing evolution of REO inventory held by both banks and the federal government evolves over time.  Homes foreclosed on by former Fannie, Freddie, FHA, and VA loan holders now sit vacant and the government asked the real estate community for suggestions on how to handle it.  Proposals range from renting the homes to selling them in bulk to investors.  Personally, I don't like either of those suggestions as they either make the government a landlord (bad idea) or enable investors to make a fortune off the failure of the average citizen.  I have a better idea and I'd like your input.

First, a little history lesson.  The mortgage crisis was created when the federal government changed the banking regulations and encouraged loans to pretty much anyone.  The banks, understanding the law, set up real estate agents and would-be homeowners with easy loans to sell homes to people who were marginal borrowers.  In the mix of all this, there were a lot of people who had good jobs, fair credit, and could still make their mortgage payments.  Those folks lost their jobs when the economy collapsed and ended up losing their house in the process.  Basically - the Fed and the banks set these people up for failure.  The banks got bailed out and the homeowner gets burned.

My proposal is this:  sell all the REO inventory back to anyone who was foreclosed on

Who qualifies for this? 

  • Anyone who was foreclosed on who had a Fannie, Freddie, FHA, or VA loan
  • They must currently have a job with
  • Their income must be enough to cover the cost of financing rebuying a home with a mortgage up to 40 years
  • They must not have lied to get their previous home loan

What the banks must do?

  • All banks must participate in lending to these borrowers
  • Underwriting guidelines must be based on income and credit alone (credit score must be 600+)
  • No loan can be denied if the person can qualify on income and credit score

I'm sure there are more than a few details that should be spelled out on qualifying criteria.  Basically, I want the Fed to right the wrong done to the American homebuyer.  The real estate meltdown caused a 4% rise in rentals and now the market has shifted to investors who buy homes and turn homeowners into renters.  While I'm absolutely in support of investments in real estate, the purchase of Federal REO inventory by investors seems like kicking the market while it's down.  Let's get these homes back into the hands of real buyers.

What do you think?

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Topic:
Real Estate Market Trends
Groups:
30 Days In September 2011 Localism Posting Challenge
BananaTude
Realtors®
The Vent
"Whacked"!!!
Tags:
reo inventory
federal government
home sales
investors
bulk sales

Comments 10 New Comment

Ambassador
779,209
John McCormack
AlbuquerqueHomes.com
Albuquerque Homes Realty * www.AlbuquerqueHomes.com

Hi Bryan -

I'm on board just need to work out a few more details and bingo!  The biggest thing is getting past buyers that lied to get the home to begin with.  Like the way you're thinking.  Enjoy a great Friday and first day of Fall.

Best regards from the Q 

September 23, 2011 11:48 AM
Ambassador
599,437
Doug Rogers
Your Pineville Louisiana Agent
Bayou Properties Realty

Terrible idea. Of course the average citizen would help, but where's the potential for pork? If the proposal does not allow banks, govt. officials, etc... to fleece some off the top then the proposal is DOA. Back to the drawing board and don't come back until you have a bloated, expense plan that accomplishing nothing. Extra points if the plan adds at least a trillion to the national debt!

September 23, 2011 11:58 AM
Rainmaker
490,241
Christine Smith
Exclusive Buyer Agent & Attorney, Canton, MA
Buyers Brokers Only LLC - www.BuyersBrokersOnly.com

It is a very interesting idea & sounds good on its face.  Implementing it & figuring out how to monitor it might be the problem. The other main issues that non-investors face is condition of the property; many foreclosed homes won't qualify for financing so there has to be a way to figure that in too.

September 23, 2011 12:08 PM
Ambassador
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Liz and Bill Spear
RE/MAX Elite Warren County Ohio
RE/MAX Elite 513.265.3004 www.LizTour.com

Bryan, Being a little biased with my Navy vet background, how about special discounts to vets to take over those homes?  As a general rule, folks leaving the service after their Iraq/Afghan tours could use a place to live and I suspect they'd be a lot more responsible than some of those folks who had them before.  Not foolproof obviously.

September 23, 2011 02:03 PM
Rainmaker
692,869
Juli Vosmik
Scottsdale/Cave Creek, AZ real estate 480-710-0739
Dominion Real Estate Partners, LLC, Scottsdale, AZ

Bryan, I see a couple of downfalls in this:  first - if the homeowners had jobs which were now paying much less than they were used to making when they qualified for their loan, then the homeowners would have been eligible for a true loan mod - since less than 8000 NATIONWIDE ever happened despite government directives to MAKE IT HAPPEN, we know that hasn't worked.

The second thing - if homeowners went through the humility and shame that is felt during a foreclosure once, it seems it would make it easier to walk the next time.

And, third, how about ignoring the credit scores?  If someone went through a foreclosure, their FICOS which are computer based and truly only now starting to see the seasoning of the scoring, would be dramatically affected. 

How about going back to plain old common sense - if you have the income, you have a loan.  If you've demonstrated mostly good payment history, you get a loan.  If you had a hardship for a time of unemployment or underemployment but worked hard to pay as much as you can, then you can have a loan.  Relying on FICO's only was an untested fallacy during a period when home values were increasing at crazy rates. 

September 24, 2011 12:49 AM
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Bryan Robertson

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Read about news, reviews, and commentary about current events and trends in the real estate industry. I also write about local markets including Silicon Valley and my hometowns - Los Altos and Saratoga.