Santa Rosa, CA Real Estate

For three years the government has attempted in vain to support the housing market and to try to help homeowners who had fallen behind in their payments or were being foreclosed on. First, they tried loan modifications and that was an utter mess. Banks had no real reason to modify and no interest in doing so. Next they set up HAMP-Home Affordable Modification Program-that attempted to help home owners with their mortgage payments. If there was not a fit then the homeowners were to be directed to HAFA-Home Affordable Foreclosure Alternative- which offers financial incentives to borrowers and servicers of the loans to utilize a short sale or deed-in-lieu to avoid a foreclosure. One of the biggest problems with both HAMP and HAFA is that borrowers must have a hardship-loss of job, illness etc.-or they wouldn’t be considered. Since many of the “underwater” borrowers were often making the payments this was not much of a solution. The most current program is one in which FHA requires the lender to reduce the principal by at least 10% for qualified buyers and then FHA will make a new loan. Borrowers need to be current and the LTV cannot exceed 97.5% or 115% with a first and second and payments may not exceed 31% of gross income. This program will help those who are close to liquidity get to a positive equity position though it may not help the majority of underwater owners.
There is no questions that Hamp, Hafa and the new FHA program have and will help some but the real challenge is the “shadow inventory” of borrowers behind up to a year on their payments and those who are contemplating walking away even they can afford the payments. When the house next door sells for half the price your home was purchased for it is difficult to keep in mind you are obligated to pay back your loan. Currently credit is restored after 7 years for a foreclosure (three years with extenuating circumstances-i.e. Illness, job loss etc.). For short sale it ranges from two years with a “preforeclosure” sale to 4 years. All of these time frames are, of course, subject to change.
The most salient point is, I believe, that the financial market will have to make adjustments in the future for all of these short sale and foreclosure homeowners or there will not be a sufficient amount of buyers once this housing market heats up. Free enterprise will demand that credit adjustments are made so the traditional market mechanisms can be put into place-and business will go on. So, my point in all of this is let the market drop, get the inventory moved and put in some protection for the financial market. Shorten the time frames for homeowners to own again and increase the down payment needed to forestall any tendency for the financial industry to repeat the excesses of the “liar loan era”. This approach may be called “elitist’ since only the ones who can afford the homes will own. Perhaps that is the intent of home ownership. It is important to be able to afford a piece of The American Dream but at what cost to society? Traditionally we have saved, waited for raises, and when the money was accumulated we bought. The accelerated inflation from 2003-2006 was fueled by the easy money and lax standards. That problem is easy to solve…getting buyers back in the saddle may prove to be more difficult a task. But to continue to keep the housing market on a respirator has proven ineffective so far. So my thinking is very clear on this: Take the hit, boost the down and create a stable, long-term housing market