What Would You Do Differently to Solve the Housing Crisis?

After working with distressed Sarasota, Fla. properties for over 5 years I think I could tell you about the worst cases of short sale “what else could go wrong”  scenarios ever.  So I am a bit relieved that some of the programs put into place by the current administration are being changed and adjusted to reach out further and hopefully help clear more houses off the market or make it possible for owners to keep property.

The Harp program (Home Affordable Refinance Program ) for homeowners who are current on their mortgage but underwater is designed to help you get a new, more affordable, more stable mortgage.  However, as of August of 2011 only 894,000 homeowners had refinanced into a better situation.  On Oct. 24, 2011, President Obama announced an overhaul to the HARP program with the intent of reaching more underwater homeowners.  HARP 2.0 went into effect on December 1, 2011 and now allows homeowners with a loan-to-value ratio of more than 125% (which was the limit with the initial HARP program) to refinance.  The process will now be streamlined by NOT requiring an appraisal or underwriting, eliminating certain fees, and extending the deadline to December 2013.

The HAMP (Home Affordable Modification Program) program lowers monthly payments to 31% of your verified monthly income and if paid faithfully for 5 years will qualify you for a $5,000 reduction in principal.   Unfortunately this program also failed to reach a majority  (only 1 million debtors) of homeowners in trouble and those that did enter the program dropped out in large numbers only to find themselves back in foreclosure.

And today Obama announced a revamped HAMP program to help investors who bought multiple homes during the bubble to qualify for up to 4 federally subsidized loan modifications starting sometime in May.  This is dependent on the landlord keeping the houses rented and thus keeping neighborhoods from the blight caused by the number of vacant houses rising.  Investors are a key piece of the puzzle in reviving the housing market as reported by NAR whose statistics showed one in four purchases in January were by investors.  RealtyTrac reports that investment and vacation properties made up 21 percent of houses in the foreclosure process in January.  Reaching out to investors that helped create inflated markets seems to bring up a good deal of ire in many who feel that the government should not assist those who contributed to the problem.  But if even small-time investors are key to the solution, which they are, why not help them regain their footing and allow them to contribute to the solution.

After all, banks were certainly part of the problem and they have been bailed out with the Troubled Asset Relief Program in 2008, Wall Street benefited from Federal Reserve emergency programs to keep credit flowing, and federal money was directed to General Motors and Chrysler Corp to keep them afloat. All of these programs were instituted by the Bush administration.  In hindsight, maybe it should have been done differently and there are certainly some issues with all of the programs processes.  It will be a continuing struggle for some years ahead.

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