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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Show All Comments
Rainer
40,932
Michael L. Brownstead
Ebby Halliday Realtors® - Frisco, TX
GRI, REALTOR

Thank you so much for your posting, it is very informative! Have an awesome ending to your week! Thanks again!

Sep 23, 2011 10:38 AM #1
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Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

"They must not have lied to get their previous home loan"  I wonder how many potential loans that would kill right out of the gate.  Sorry Bryan I couldn't resist.

Sep 23, 2011 10:43 AM #2
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Bryan Robertson
Catarra Real Estate, Inc - Los Altos, CA
Broker, Author, Speaker

Michael - You're welcome.

Charita - No worries.  Yeah, that might kill quite a few loans immediately.  :)  I'm open to whatever rules work, I'm just suggesting we get these homes back into the hands of the people who got burned in the meltdown.

Sep 23, 2011 10:56 AM #3
Rainmaker
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Robert (Bob) Gilbert
Berkshire Hathaway HomeServices Anderson Properties - Katy, TX
Your Katy TX Real Estate Expert

Bryan,

My friend that is a very creative idea and too bad the Feds will probably never consider such a proposal as it is a great idea, should be a solution to an enormous problem but the solution was not thought of by our brilliant(?) political groups.

Sep 23, 2011 11:18 AM #4
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Brian - I really like your idea, and I appreciate the fact that you're concerned about finding a solution the helps someone other than the banks. This is kind of an analog of the suggestion, back when the crisis hit, that the stimulus money be directed to home owners who were in financial trouble, with the requirement that it be used to pay down their mortgages - the funds would have made it to the same banks, but many less homes would be underwater today, and the banks wouldn't be sitting on money the way they are. Your program could be structured to have the same kind of impact.

Sep 23, 2011 11:20 AM #5
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John McCormack
Albuquerque Homes Realty * www.AlbuquerqueHomes.com - Albuquerque, NM
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 

Sep 23, 2011 11:48 AM #6
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Doug Rogers
Bayou Properties Realty - Pineville, LA
Your Pineville Louisiana Agent

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!

Sep 23, 2011 11:58 AM #7
Rainmaker
508,329
Christine Smith
Buyers Brokers Only LLC - www.BuyersBrokersOnly.com - Canton, MA
Exclusive Buyer Agent & Attorney, Canton, MA

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.

Sep 23, 2011 12:08 PM #8
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Liz and Bill Spear
RE/MAX Elite 513.265.3004 www.LizTour.com - Mason, OH
RE/MAX Elite Warren County OH (Cincinnati/Dayton)

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.

Sep 23, 2011 02:03 PM #9
Rainmaker
718,034
Juli Vosmik
Dominion Real Estate Partners, LLC, Scottsdale, AZ - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

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. 

Sep 24, 2011 12:49 AM #10
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Bryan Robertson

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