A Housing Crisis Solution: Why Banks Could Do It But Won’t

In my local paper, The Palm Beach Post, Ms. Kimberly Miller’s Story on the top of the front page reads: “Loan forgiveness wave in sight?”  You can look at the piece yourself at: http://www.palmbeachpost.com/money/real-estate/bank-of-america-has-new-forgiveness-program-to-438657.html

In short, Bank of America announced yesterday that it’s unveiling a new program that may cut up to 30% off of mortgage loan balances.  My heart was racing as I started reading this article because I have been very adamant for a couple years now that the paralyzing effect of the housing bubble calls for an equally radical reaction from the banking institutions that doled out countless home loan that are now upside down with no end in sight.

Evidently, as Michael Sichenzia, president of Dynamic Consulting Enterprises in Deerfield Beach, Florida points out, the banks are facing the stark reality that it cost a lot to administer all these foreclosures rampant in our nation and despite politicians on both sides-there isn’t  slowdown in this trend, people are simply too tired and drained even if they have the funds to carry on with home loans that are of no benefit, especially for those who have to move out of an area and can’t sell.

I was actually hopeful until I reached the unfortunate caveat that every housing crisis “solution” has as its disclaimer: “To qualify, a borrower must prove financial hardship, be two months delinquent in payments, and owe at least 20 percent more on the loan than the home is worth.”‘ -source: Palm Beach Post, Kimberly Miller, http://www.palmbeachpost.com

Forcefully reading through the rest of the article I was fuming.  Again, it’s a “solution” that is not addressing the real issue.  Every few months the numbers released about delinquent loan holders reveals that many are repeat offenders in their delinquency.  These housing crisis solutions continue to target those who are “delinquent”. Why? Except for a marginal few, statistically speaking it’s a bad bet to continue to reward those who are not fulfilling their signed contracts.  At risk of being called a racist, why must we “ghetto-ize” ourselves in order to seek assistance? (note: I was born and raised in a mixed-race ghetto as a dark olive-brown Greek girl)

The whole “hardship” clause in all of these housing crisis solutions is flawed because it’s like pretending that there’s just a few people out there hurting when it’s plain economics that we all are in hardship-regardless of our social or economic class backgrounds.

I’m not excusing the fact that our real estate market got out of control as we entered the 21st century.  Certainly there is enough blame to go around from the selling agents, the over-eager buyers, the zealous mortgage brokers, the welcoming banking institutions, the “flippers” and so forth.  I personally struggle with trying not to regret our home purchase in 2005 as we did so in order to make sure we could sell it in Maryland when the time came for us to leave so that we could afford to buy real estate in my native state of Florida.  Whether it was for honorable or dishonorable reasons, many of us in America got duped by what was considered a sound investment of the Aughts decade.

Here we are today mired in the wastewater of “bigger than life” housing dreams, many already extinguished their credit lines in exchange for release from loan interest payments they couldn’t honor.  Then there are those in silent majority who every month pull out the checking book or queue their checking account to transfer the mortgage payment each month even though many of us may not even live in our property anymore.

For instance, my husband and I had to leave a year ago from the Washington, DC area to follow a job lead here in Florida.  Given the job market at that time, we had to leave even though putting our house up for sale was impossible unless we consented to a short sale.   When we found out the details on what a short sale was, my hair stood on end–it was reminiscent of the feeling I got when adjustable interest or no-interest rates on our mortgage were suggested to us years earlier, no thanks, there’s something not right about it.  For short sales, there was the possibility of your banking institutions “forgiving” the balance of the loan that you owe if you can’t sell your house for that amount but there was no guarantee that your credit line wouldn’t be affected and no details on for how long. We were finally able to rent out our house but at a loss that we still pay out at least $700 a month toward the mortgage, effectively stamping “BOOMERANG KID” on our foreheads until we pay down the mortgage enough to sell at its value or win the Florida lottery (which odds are better?).

Here’s my humble laymen’s proposal: we need to hit the “reset” button on this housing/mortgage loan industry.  If President Barak Obama claims that we can have “hope for change”, then this is my “We can” moment to rail upon.

By no means am I saying that the banking institutions shouldn’t make profit on us, in fact, I’ve always believed that Americans take it for granted that you can have something on borrowed money/credit.  What I am advocating is that our banking institutions take an ego hit and recalibrate all existing home loans to amount what the property’s value is currently. There should be a time frame set in place to help the overall recovery process; basically allowing for these loans to be equal to the property’s value and any variations in the next 3 – 5 years (or whatever the smarter economists and statisticians think may be best).

Although this would be a quickly felt financial shock on the part of the banks, I do believe it would allow for another chain reaction to occur almost immediately.  Just like a boat vessel performs better after barnacle and other underwater gunk removal, the real estate market would start to move more naturally again.  At the moment, it’s a feasting ground for some first-time home buyers and investors (many foreign, note) that are able to clean up on the short-sale and foreclosure landscape.  Finally, those that legitimately need to sell would have a better chance as they could list their property is for what it’s truly worth (attracting buyers) and upon sale would still make sure their lender is paid(bank is happy, not dealing with administrative sludge and cost of foreclosure or default).

This may seem like a pipe dream but I don’t think it’s beyond the realm of possibility.  We have incredibly smart people in this nation that can work out the numbers and the parameters of a proposal like this to what could really be a viable option for our government, banks and citizens to cooperate on.

Plainly speaking, we who bought ought to pay the banks their due.  However, that needs to be balanced with a dose of reality-checking on the banks’ part.  Banking institutions should drop the idea of government “bail-outs” and instead get the government’s economists and statisticians to calculate the right equation for existing mortgage loans to be calibrated to the current value of the property.

Again, I don’t have a PHD in economics or the like, however as a meager English major, I hope someone reads this and passes on to people who can help make a difference in this housing crisis that our nation is crippled by financially.  If China can do whatever the heck it wants with its currency value, why can’t America step up and pull together on this one?  Consider this issue our “Victory Garden”, the problem that we all need to work on and get through.

As a final note, I do applaud Bank of America Corporation for at least attempting to make a step in the right direction.  Still, it’s not what they could do and I just wish they would.


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