CAN THE GOVERNMENT FIX THE MORTGAGE MESS??

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

THE MORTGAGE MESS AND THE GOVERNMENT FIXES.

Fellow ActiveRain member Ken Montville speculates on the likelihood of significant losses in market value for home owners.  Of course, it's all speculation.  We can't see into the future.  We can, however, speculate and the 30% decline in market value doesn't seem out of range to me.  Further, the speculation that the government can prevent such a loss of market value by "saving" home owners from foreclosure or loss of their home through short sale, is, I believe, unlikely, simply because there just isn't enough money for them to do so.  Any government fix, I believe, would simply do what all government "fixes" do, they favor some groups over others.  For one thing, the government still has some "fixing" to do in Iraq.  That's the classic example of "You break it, you fix it".   

So far, all of the government "fixes" have reminded me of the proverbial "Gnat on the Elephant's back". 

DON'T UNDERESTIMATE THE DEPTH AND REACH OF THE MORTGAGE MESS.  The reach of the mortgage mess is wider than the government can handle.  Unless the government is prepared to take over the financial houses that traded those securities designed to finance the exotic loan instruments to permit unqualified home buyers and investors to buy properties, there is little the government can do except drag the corporate officers to Capitol Hill and make speeches to the TV cameras. 

LET'S GET A HANDLE ON THE NUMBERS.  These financial houses are in the process of writing off, by some estimates, $300,000,000,000.00 in losses.  Individual home owners loosing their properties to foreclosure or short sales are loosing, by some estimates, upwards of $50,000-$100,000 each.  I believe it's a lot more.  The predicted 1,000,000 foreclosures over the next five years will produce a loss of market value of about $100,000,000,000.00.  The government proposes a $15,000,000,000 "bail out". I believe that predictions of a 30% drop in market value is quite conservative.  Many markets have already experienced a loss of market of that magnitude.  Goodness, read Bryant Tutas's blog and see a classic example in Central Florida. 

THIS IS NOT THE FIRST TIME, JUST THE WORST.  Northern Virginia home owners lost 20-25% of market value in the banking messes of the early 1990s and survived.  The persons that will suffer in this present mess are not the persons whose home value drops.  It's the person who has to sell because of job transfer, illness, loss of income, family emergency, etc., and can't sell because he owes more than the home's market value.  If the home is simply a home, they can ride it out.  The home owners that will be harmed will also be those who have mortgages with accelerating payment amounts and the home owner is unable to meet the new payments.  Many of these owners defaulting property owners purchased for investment purposes and then found that the market stalled when they needed to sell and they have no equity with which to refinance.  Many defaulting home owners are home owner/occupants who spent their equity when the market was accelerating at a fast pace and the home owners thought that the market always went up and never down.  Now that they need to refinance out of short term ARMs, they have no equity and are stuck with resetting payments far higher than anticipated. 

However, many market watchers believe that the problem of consumer defaults is far too large for the government to be able to fix.  Like the gnat on the elephant's back, they can only chew around the corners.  In time, the market will correct itself.  It always has.  It always will.  It's called Capitalism. 

PROSECUTIONS WILL COME.  Many of those that profitted from gross mortgage profits will bask in the luxury of their ill found gains.  The easiest to catch are the ones who are still pushing ill-advised mortgages.  We know it's still going on.  ActiveRain members have reported attempted mortgage fraud on their blogs and I hope they will continue to do so.  We can help with awareness of what constitutes mortgage fraud.  Agent involvement in their client's mortgage process can accelerate the demise of mortgage fraud. 

Prosecuting the profiteering purveyors of piggishness takes time.    

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

   Lenn's Blog    

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Comments 64 New Comment

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Lenn Harley
Real Estate Broker - Virginia & Maryland
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate

Bill.  The examples in the Mortgage Fraud report that you linked to are not your average hard working boots on the ground Realtor. 

Here's the way I see it. 

1.  A real estate agent and lender can work together to commit mortgage fraud on a regular basis.  They're the ones who advertise "Bad Credit No Problem".

2.  Real estate agent and lender work together to work the filpping schemes, representing the investor who makes minimum repairs to properties and reselling them to unsophisticated buyers.  They need an "inside lender" to circumvent the HUD rules on flipping properties.

3.  Real estate agents who feed "lease/purchase" buyers to investors who buy properties with land contracts or options and rent the properties to unsophisticated buyers with the promise that when the credit is cleaned up they'll be able to buy.

4.  Agents who take referrals from lenders who are pre-approving unsophisticated buyers with higher than market loans knowing the agent won't upset the apple cart because the lender referred the buyer.

5.  Agents who sell HUD foreclosures with loan approvals from lenders who approve the loans for amounts far exceeding the market value of the properties enabling the buyer to get the bid.  The buyer will be upside down on the home for 5-10 years because they pay too much in the beginning.  HUD colludes with agents in this system, pays the agent 5%. 

These are not simply agents and lenders working together.  These are criminal enterprises. 

None of the above involve the average neighborhood real estate agent.  I've been around a long time and I've seen all of the above in action.  I have sense enough to not be a part of any of these schemes and I believe most agent do.  Agents don't fall into mortgage fraud. Unhappily, many agents don't recognize it when they see it.  But, I do not blams the real estate industry for our present catastrophe. 

I agree on the causes of our present mortgage mess which is why I don't believe the government can fix anything. 

Lenders can commit mortgage fraud without the assistance of an agent.

An agent cannot really commit mortgage fraud without the assistance of a lender.  Lenders have the right to require documentation or reject a loan. 

I''m finished and now I'll put my Bill doll away. 

March 10, 2008 03:36 PM
Anonymous #61
Anonymous
Anonymous

Lenn:

Thank you for clarifying and I agree with your last comment.   I appreciate you putting your Bill doll away. L.O.L.

March 10, 2008 03:50 PM
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George Souto
Your Connecticut Mortgage Expert
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut
Lenn non of the fixes that I have seen so far have much.  And Fannie and Freddie continue to go down the wrong path in my opinion.  Fannie and Freddie continue to up the points on loans.  At first it was for Credit Scores under 680, now they are ready to assess points for Credit Scores under 720, but doing nothing about the high ratios.  To me all this is doing is costing bad Borrowers or in the present good Borrowers as well (I consider 680 a good score) more money to by a house, in stead of lowering the ratios to keep people from taking on debt that they can't afford.
March 10, 2008 07:10 PM
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Jim Crawford
Jim Crawford Atlanta Realtor - Atlanta Real Estate
RE/MAX Paramount Properties

The Government is incapable of fixing this.  I am a firm believer they caused much of this by demanding no possible home owner left behind in the pursuit of the American Dream.  That pursuit has just turned into a major nightmare.  Someone forgot to tell them it is better if you have money into the deal!

March 11, 2008 08:45 PM
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Chris Ann Cleland
Associate Broker, Northern VA
Long & Foster REALTORS®, Gainesville, VA
I think getting people in trouble to a 50 year loan is about the only thing that makes sense to me, but I have heard every BUT that.  I can't even believe that some "experts" think that people in trouble should have their principal amounts on their mortgage adjusted to reflect current market value.  Makes no sense to me.
March 13, 2008 10:21 PM
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Lenn Harley

Real Estate Broker - Virginia & Maryland
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