The federal government has tried, not so successfully, to solve the housing dilemma through programs designed to help homeowners having trouble making their payments.
The government has developed programs such as Home Affordable Foreclosure Alternative (HAFA), which many real estate agents have reported has doubled and complicated the paperwork to get a short sale approved.
The feds have also tried a loan modification program that by all news accounts has been a dismal failure.
The reports claim that the loan modifications work for a short time and then the homeowner finds himself months later back in the same underwater predicament.
Remember the people who are trying to help us are the same people who helped get us where we are today.
The lax lending standards they created gave rose colored glasses to people who could not afford to buy a home or those who should not have invested in real estate.
This contributed to the rapid rise and then the resultant freefall of housing prices.
The problem we may be facing today is that many credit-worthy individuals, who have the ability to make their mortgage payments, have or are considering walking away from their homes which leads to the further deterioration of market pricing.
One Arizona State University professor even suggests that this is the course of action people should take.
These credit-worthy individuals may have bought their home when interest rates were at 6 percent but cannot refinance at today’s lower rate of 4.5 percent or 4.75 percent rate which would lower their payment and induce them to remain in their home.
An interest rate reduction from 6 percent to 4.5 percent is the equivalent of a $186 a month saving on a $200,000 loan.
If consumers had an additional $186 ($2,232 a year) in discretionary income, this could surely help to stimulate the overall economy.
A possible solution is to allow credit-worthy consumers to refinance at today’s rates with their lending institution even if they are upside down on their home.
The refinance would be based on their credit history and not the home’s value.
This may prevent homes and investment properties, where the owner has the ability to meet their obligation, from being dumped on the market.
This in turn would accelerate the housing market and in turn help prices to recover quicker.
If housing prices recover quicker, the economy would get healthier faster and more people would return to work in the sectors that are affected by the housing industry.
The above is one possible facet to a recovery and would be a simple program.
Unfortunately, Washington, D.C. generally does not embrace simple solutions.
Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.