A few thoughts on how we can fix the mortgage crisis.

I’m just going to throw out a few ideas and see if any of them make sense, does that sound like fun?

1) Since the government is such a fan of spending money we don’t have to buy mortgage-backed securities, why not go a step further and buy actual loans? If they did, perhaps they could buy and refinance loans for borrowers who bought homes using stated income, or low-documentation loans. A good chunk of this ‘mortgage crisis’ began when banks started eliminating ‘Stated Income’ programs, so that when borrowers who purchased homes USING those programs, and often times had adjustable rate mortgages, they could not qualify for a refinance. I am NOT saying banks should bring these programs back for new loans, all I am suggesting is that if someone used that program when they purchased, they should be allowed to qualify using that same program to refinance. This will help at LEAST two people. In seriousness, no investor wants these loans on their books. So there are very few options on the open market- even though these loans were their brainchild, and marketing favorite for quite some time. A huge segment of delinquent borrowers could be attributed to the inability to refinance out of their skyrocketing payments- if the loans were still available, we would still be in the mess we are in, but at least a few less people would have lost or given up their homes.

2) Force banks to start working with borrowers BEFORE they are late on their payments! I am SICK of hearing that lenders are refusing to discuss short sales, or loan modifications until borrowers are late by a month or two. What good does that do anyone? If someone needs to sell their home, presumably to MOVE, how can they buy another home with poor credit? They can’t. Let people keep their good credit, and do what is right! Lenders need to start cooperating and being proactive. 

3) There has been some talk of this one, so I can’t take credit for coming up with it in the slightest bit, but it would help DRAMATICALLY. Allow borrowers to refinance their homes without requiring an appraisal. Don’t freak out yet. If someone wants to stay in their home, and has confidence that their market will bounce back- reward them for their loyalty and willingness to make it work! FHA and VA loans already offer ‘rate and term’ refinances with no appraisal, and even no income verification (VA). The government backs these loans, and since the printing presses are up and running to bail out banks, can’t we also use a little bit of money to back real people who need help? 

 

Any other thoughts? This is going to be a very rough year for millions of people. If we don’t do something to get off of this track, we are in deep. A combination of borrower AND lender effort can bring us out of this, or at least stabilize things. But then again, when houses prices are continuing to fall, does it really matter what we do? Should we just throw our hands up and wait for the Depression Part Deux to hit? Why does it seem that no matter what the government does to bail out the banks, nothing changes on the streets of the US? Oh, by ‘nothing changes’, I mean- things get WORSE. Maybe they are throwing money around in the wrong places? 

 

Jennifer Monastero

Citizens Community Bank

January 9, 2009