Does the Real Estate market need a kick in the pants or a shot in the arm from good ole' Dr. Kervorkian?
According to Bloomberg News, President Bush recently directed the Federal Housing Administration to guarantee loans for delinquent low-and-middle-income borrowers.
Hell-oooo!! Anybody home? No pun intended!
First, the majority of the people who borrowed from sub-prime lenders did so because they wouldn't qualify, for whatever reason, for a conventional FHA mortgage. To counteract that fact, CNN said that Bush's proposal may take the form of expanding the pool of borrowers who can apply to the FHA to refinance their loans.
Is this a good thing?
Maybe.
Maybe not so much.
Right now, if people refinance a loan that includes the lender forgiving any of the debt, there are a plethora of nasty tax liabilities that come into play. Same thing with a short sale. If Congress doesn't work quickly to change that section of tax code, some homeowners who are actually able to take advantage of trying to re-fi through FHA may find they have a big IOU with the IRS.
And, as we all know, some of us all too well, the IRS doesn't take kindly to IOUs. They'd much rather you show them the money - A.S.A.P. or E.L.S.E.
The "big picture" from the Mortgage Bankers Association report is that in the second quarter, the rate of loans entering the foreclosure process was 0.65% versus 0.58% in the first quarter. The same report states that the percentage of sub-prime borrowers making late payments increased from 13.77% to 14.82%. That's a scary trend you definitely don't want to be part of.
The bottom line is that this rapidly escalating foreclosure and potential foreclosure situation should never have been allowed to happen in the first place. Irrational and often predatory lending practices by some sub-prime lenders and some unscrupulous mortgage brokers, along with - let's be honest here - some not so educated borrowers who decided to live outside of their means or who were trying to keep up with the proverbial Joneses - all share the blame for this economic fiasco.
While there are certainly honest sub-prime lenders and up-front mortgage brokers, an awful lot of nice folks have been truly taken to the cleaners by some not-so-nice mortgage lenders. Why this doesn't go without saying, I have no clue, but homeowners need to GET EDUCATED AND DO THEIR HOMEWORK.
Here's my assignment in a nutshell.
o Watch out for deceptive ads with the fine print in two-point font size,
o Get some high-powered reading glasses and read the fine print,
o Only use references from professionals you would trust your first-born's financial future with,
o Research and understand the industry's "alphabet soup",
o Be aware of this tactic used by some Internet mortgage advertisers touting low-price loans: be sure to scroll all the way down to the bottom of the Web page, because often the little gotcha details are buried past a ton of blank space,
o Ask questions and then ask MORE questions,
o Get everything in writing,
o If that little voice inside of you has the teeniest, tiniest bit of doubt or confusion, hire a Real Estate attorney to go over the paperwork because a small investment now could literally save your home, your credit and your sanity, along with hundreds of thousands of future dollars,
o Remember, if it sounds too good to be true, no ifs, ands or buts -- IT IS!!
With that said, what can be done right now to make life a little less sweat-soaked for homeowners already teetering on the edge?
Take a reality check on where you stand, lay it on the line, suck it up and be honest with your lender - they don't want to take your house any more than you want to lose it. In addition, don't demonize "everybody else" - taking responsibility feels good - thank you, Dr. Phil.
Along with consumers taking personal responsibility, I believe the industry and the government need to take what I call the hybrid "Jack Kervorkian/Dracula approach". Euthanize the voracious practices of so many of the sub-prime lenders then drive a stake through their hearts so they don't come back to life when this is all over. Because the massive amount of misery they create gets inflicted on the entire rest of the economy.
If we can get that to happen, as President Bush might say, we'd be doing a heck of a job.
