Why can't we let the free marketplace help solve our horrific housing problem?

During the past few months, I have read and saved several depressing articles that put statistics and numbers to the pain so many Americans are experiencing. Hang with me as I vent a little:

If you live in North Las Vegas and paid $300,000 for your home in 2006, it's worth about $100,000 today.

If you live in California, Nevada or Arizona, some economists predict a "full recovery" may not occur until 2030.

Nationwide, 23% of homeowners with a mortgage are underwater - they owe more than their home is worth.

Household debt is $11.5 trillion dollars - 2 and 1/2 times the 1999 level.

75% of this $11.5 trillion is mortgage debt.

$50 billion dollars went to banks in the 2008 bailout to be used for mortgage relief.The media reports $2 billion has been used as of June 30, 2011.

8.44% of ALL homeowners in the United States have missed at least one mortgage payment.

This is staggering information. We are a country in deep pain. Millions of lives are being ruined. Home prices doubled across the nation from 2000-2006, tripling in the Los Angeles area where I live. Estimates suggest that California homeowners who are underwater - that's more than 30% - have an extra $93,000 of "debt" that is not supported by property value.

If it will take till 2030 for a full recovery, how long will it take for these homeowners to pay off this dead weight debt? I don't know. But I do know that people can no longer use the appreciation in their homes as a retirement plan to fund the rest of their lives. A friend of mine did just that, buying a home in the 1970's, living in it for 30 years, selling it for 7 times what he paid for it, then moving out of state, paying cash for a 5 acre property, and having $500,000 LEFT OVER! He experienced the American Dream. Today, for millions it is the American Nightmare.

I am not any smarter than the next guy. But my basic belief is that the more government tries to do, the more they hurt us. If the key issue that burst the bubble was bad lending practices, why did our government add to the problem by doing the following in the midst of the crisis?:

Give first time home buyers an $8,000 credit

The Fed kept interest rates close to zero percent, encouraging banks to borrow even more money for free.

The Home Modification Program has not forced lenders to write down the mortgage amount owed.

The FHA increased the size of mortgages eligible for government insured lending from $400,000+ to $700,000+. And, the downpayment could be as little as 3.5%

If you look at any of these actions individually, maybe you can make an argument that is a good thing for the country. But when you realize that all of these decisions occurred since 2008 - in the middle of our pain - can you understand how these decisions exacerbated the problems that caused the bubble in the first place? Namely, reckless lending/borrowing, too little downpayment, too much personal debt.

How does all of this tie into seller carryback? Many note buyers were guilty of the same practices. But there is a difference in how the problem was approached. Simply, if I sold you a property and you eventually had problems making your payment, I would talk to you. I would try to find out what is going on in your life. Did you lose your job? Have a medical emergency? Could we work something out? Do you want to stay in the home? Should we rework the terms?

I would make every attempt to salvage the situation because it would be better for both of us. If we could not work it out, then and only then would I resort to foreclosure.

A big notebuyer recently indicated that this past summer, 80% of their deals fell apart because the value of the collateral could not justify the potential purchase price of the note. Given all the things I am talking about here, many note sellers continue to deny this reality - "their" property is different and more valuable. What to do? Buy part of the note. Seller gets cash now and more payments later. Buyer minimizes risk and has an opportunity to measure performance of the payor on the note and collateral value. Problem solved.

Back to the main theme today. Why, in the beginning of this crisis, did the free marketplace not work? Why did lenders not show respect for their customers, try to understand their circumstances, and work it out? Wouldn't the lender have a "better customer" as a result? Wouldn't that extra loyalty translate into both parties being better off long term? And, after exhausting all possible solutions, then, and only then, the lender would foreclose. This would have been the American way. Respectful. Businesslike. The right thing to do. The way we are supposed to do things in our country.

Bank of America recently announced they will be cutting 40,000 jobs and eliminating some of their retail banks.They received a bunch of bailout money. They made a bad decision in purchasing Countrywide, which has resulted in billions in losses. They are one of the "leaders" that the media refers to when discussing bad lending practices. Did their customers cause these problems? Did B of A treat their customers the way lenders treated customers decades ago? You and I know the answers.

I guess we can pray for hope and change.

Sincerely,

Denny Stanz

760-245-5366
760-245-5367 fax
dennystanz@verizon.net
www.CaliforniaNoteBuyerLLC.com