The government's attempts to "fix" housing, and stop the foreclosure crisis via various programs have failed miserably. We've seen a 7 trillion dollar loss in the value of the U.S. housing market, and trillions more spent for bank bailouts, and general support of all things related to housing, such as Fannie, Freddie, FHA, low interest rates and mortgage backed securities. Yet home sales are down and foreclosures continue at record levels.
Housing values in hard hit areas continue to erode, and millions of home owners are still threatened with foreclosure. Some housing analysts have termed it a "death spiral" in the housing market, as the loss of value leads to more defaults, and more defaults lead to more loss of value, etc., etc.
While the federal government has created HAMP, HARP, HARP2, TARP, HAFA, and perhaps a few others, many states also have created a litany of state funded payment assistance programs, such as "HomeSafe" in my home state, Georgia, that offers payment assistance to home owners who are behind on their mortgage payments.
As one who is intimately familiar with the fight to help home owners save their homes, I can tell you that the crux of the problem is not to blame mortgage servicers, or "deadbeat" borrowers, and it's not even the fault of Ed DeMarco, the embattled head of FHFA, who is presently refusing to write down mortgage principal. I suspect that even if DeMarco does bow to political pressure, and agrees to some kind of plan to write down mortgage principal, it will not be the problem solver that everyone has made it out to be.
I've been doing foreclosure mitigation for individual borrowers for several years now. During that time I've seen first hand how ridiculously difficult it is to understand these programs and help borrowers find a program that is right for them.
In my opinion, based on personal experience working with mortgage companies to help borrowers avoid foreclosure, the primary reason why so few home owners have been able to get any kind of assistance is because no one can tell who qualifies for what program.
These programs were created with a variety of qualifying criteria that must have been thought up by throwing darts at a list of potential criteria. And from a tracking standpoint, there is no single source for all of the data that must be verified to qualify a borrower for a particular program.
For example, a program may call for these guidelines for a loan modification or payment assistance:
1. Borrower's current mortgage payment must be above the 31% threshold.
2. Loan to Value may not exceed 125%.
3. Borrower may not be more than 6 months behind on their mortgage payments.
4. The reason for borrower being in default must be due to loss of employment.
All of the programs instituted by federal and state agencies suffer from a severe lack of qualified users. While HARP expected to help perhaps 4 million borrowers avoid foreclosure, the actual number was less than 1 million. And it goes on with the rest of these programs. None of them were utilized at the level that was predicted for the program. Some have only reached 5 or 10% of the total that was originally predicted.
The government bureaucrats, who have no experience in real estate, make these rules, and then blame the servicers or some other agency when the goals are not met. But the real problem is the people making these silly, arbitrary rules.
If your goal is to stop foreclosures from happening, what the heck difference does it make whether someone is 6 months behind or 12 months behind? And if people can't make their payments due to the employment situation, what the heck difference does the 31% threshold make? Did the banks or AIG have to meet such silly, arbitrary rules for their bailout? I doubt it.
And as anyone in real estate knows, you have no way to track all of these requirements in an easy way. Public records can show you how much someone owes on their mortgage, who the lender is, and who the borrower is, but there are no public records for employment info, as in did you get behind because you were unemployed? or did you get behind because you bought a new Ferrari?
Expecting mortgage servicers or state agencies to sort out all of these qualifying requirements is simply not realistic. So borrowers seeking help are asked to submit reams of documents on all sorts of things, then those documents have to be sent to someone at the mortgage company or state agency who has to look at all of them and try to determine if that borrower meets the guidelines for a particular program.
It's very difficult to do, and what if the borrower is lying? How can you expect the mortgage servicer or state agency to tell? This stuff is just too complicated. No one, not the borrower, not the mortgage servicer, or the state agency can readily determine who qualifies for what. So, while the borrower thinks that they have begun the process of saving their home, back at the mortgage company office in San Diego, California, the foreclosure has been filed, even as the modification office in Eagan, Minnesota attempts to determine who is qualified for what. So the right hand does not know what the left hand is doing. As a result, people get foreclosed on while believing that they are about to get a loan modification. It's just plain crazy.
But when the government bureaucrats want to make sure something gets done, they call in the IRS to enforce it. Take the "Patient Protection And Affordable Care Act", better known to most of us as "Obamacare". This program is designed to require every man, woman and child in the USA to have health insurance. So how did they decide to enforce it? Call in the IRS. When it came to making sure that virtually everyone in the nation had met the program requirements, the government chose the IRS as the most efficient way to insure that everyone was "in compliance".
Why not have the IRS handle the foreclosure crisis as well? When someone tries to get a mortgage they must submit a tax return. If a borrower wants to qualify for a loan modification, or verify income for the variety of foreclosure programs out there, they are often asked to submit a tax return. In fact, if you look, you'll see that the only real improvement we've had in the housing market since the 2008 collapse, was not due to government intervention, HARP, TARP, HAMP, or HAFA, it was the buyer tax credit of 2009-2010. Once it expired, the housing market went back into it's tailspin.
When the government really wants to ensure that everyone "qualifies" for a program, they tie it to the one government agency that is famous for it's ability to track and confirm data. Why not give all borrowers a big tax credit equal to the difference between the amount they owe on their mortgage, and the current value of their property? Then, take that tax credit refund, and have the IRS send it directly to the mortgage company to make up those back payments. That would give all "underwater" borrowers a "principal reduction", bring all delinquent borrowers who are "under-water" current on their mortgage, and effectively stop the housing crisis dead in it's tracks. And the cost could be paid for with all that unspent money from HARP, HARP2, TARP, FHFA and any other related program.
And as for those borrowers who got behind because they were unemployed or underemployed, who but the IRS knows better when a borrower is really qualified for this status? Their income tax returns tell the tale, and shows the unemployment income or loss of income. No one but the IRS has such immediate access to this data. Since all home mortgages and tax returns are tied to the social security number for the borrower, it's all there in one neat package. No more confusing programs with endless acronyms, no more trying to figure out who qualifies for what, and the IRS is already set up to deal with hundreds of millions of people, so they won't be overburdened.
And while you are at it, bring back that buyer tax credit for all of the folks out there who still have money and credit, and give them a reason to start buying again. You'll have the housing problem solved in about a year.
Donna S. Robinson is a 16 year veteran of the real estate industry and a staff writer for Realty Biz News. She is a recognized expert on housing market issues and residential real estate investing. You may join her email list on her website at www.RealtyBizConsulting.com