The Great American Housing Challenge

What can be done to stop foreclosures and the resulting drop in housing values?

December 13, 2008 -- BLOOMFIELD, MI - Mortgage rates dipped this past week to 40 year lows and although many homeowners would like to refinance and lower their mortgage payments, a significant portion cannot due to being upside down in their homes.

Nationally, as of October, almost 25% of financed properties have less than 5% equity in them or are upside down.  Nevada leads the nation at almost 53%, followed by Michigan at almost 47%.  Refinancing to lower mortgage payments will be difficult for many homeowners as they would have to bring money to the closing that they probably don't have.

The government's efforts in creating programs to help homeowners, have so far failed to significantly slow the deluge of foreclosures. 

FHA Secure, designed to help homeowners refinance out of subprime ARM's, has reported questionable result numbers according to the New York Times.  In fact, the definition of the program was changed to pump up the program's numbers.

FHA's Hope for Homeowners has also generated dismal results.  A 47 page list of participating lenders, updated by HUD December 12^th, doesn't have any of the top ten lenders in the country on it.  These lenders account of almost 70% of the mortgage market, if they're not on the list, consider the program a failure.

On November 11^th, the government announced an initiative for lenders to modify mortgages held by FNMA & FHLMC.  An $800 per loan incentive was even offered.  This program was so well received by lenders that there's now talk about tying the receipt of federal bailout funds to participation in the initiative.

So, what would be a better solution to help keep people in their homes and seriously slow foreclosures?  It's all about affordable monthly payments.  So, how about doing away with appraisals altogether on refinance transactions that don't pull any cash out of a property and lower the homeowner's mortgage payment? 

Through ownership of FNMA/FHLMC/FHA/VA the government already effectively owns over half the residential mortgages in the U.S.  As such, we've got nothing to lose by ignoring appraised values.  We can only gain by lowering monthly payments to make it more affordable for homeowners to stay in their homes and avoid foreclosure.

This solution also avoids the issues of trying to force lenders into doing loan modifications and the investor lawsuits associated with those same modifications.

Anyone have a better idea?

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Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education.  He can be reached at 248-356-3739, dsygit@TheLendingEdge.com  or read his blog:  http://drewsmortgagenews.blogspot.com.