Housing and Economic Crisis - One Simple, Logical Solution! - Your Thoughts?

The following is an email I sent to the President on February 14^th, 2009. That email was slightly truncated as the White House has a 5000 character limit. I am extremely frustrated that our government has been so slow to respond to what I believe will prove to be the biggest crisis in our nation's history.

I am far from knowledgeable regarding the intricacies of our economy but, it is my perception that considerable sums of money are being wasted in areas that do not address the problems, with no method of recapture. The net worth of America is plummeting and we will be faced with many additional problems as the Boomers look to retire. Maybe I am over simplifying things.

Dear Mr. President,

Our current housing crisis is crippling our economy and will continue to do so for many years if the proper action is not taken.

We can't afford to have six to eight million homes, or more, dumped into the market over the next several years. Nor can we afford to have the existing loan portfolios devalued as a result. We need to keep as many families as possible, in their existing homes, with their existing loan balances.

We need to stabilize real estate values as quickly as possible. Many Americans have the feeling that they don't want to help bail anyone out. They feel that if an individual or family bought a home that was beyond what they could afford, too bad, it shouldn't be everyone else's problem.

Many of the non-performing mortgages are not the result of the individual living beyond their means but a result of employment downsizing or job loss.

What they fail to realize is that every time there is a foreclosure in their neighborhood it is decreasing the equity in their home and directly costing them thousands, and sometimes, tens of thousands of dollars due to the resultant decrease in the value of their home and in their net worth.

Our government had good intentions when it decided, during the Clinton Administration, to increase the home ownership rate from 64% to 71%. Clearly, no one considered the affects that increased demand would cause on real estate prices. Nor did anyone step in to stabilize it. It was only common sense that you cannot have real estate values increasing at double digit rates when personal earnings are not increasing at a similar rate.

Our government played a very significant role in bringing us to the precipice at which we currently stand. Our government needs to take responsibility for a good idea that didn't work.

I am watching banks sell their foreclosed properties, in my marketplace, at prices that are below what the structure alone would cost to replace. The lenders do not care at what price they sell because the loan on that property was written off last year and what they receive this year is all profit. They are cannibalizing the market and each other. And this is only going to get worse.

The further property values decline, the greater the likelihood that an owner will just walk away and further worsen the current situation.

We already have a vehicle to resolve this crisis, but I'm sure we'll have to invent something new that won't work.

I have been a in the real estate profession for over thirty years. I am the Broker/Owner of Keller Williams Realty Atlantic Shore, in Atlantic County, NJ.

Years ago, I, and the agents that worked for me, sold homes to low income buyers, financed via what was commonly called the Farmer's Home Loan Subsidized Housing Program. This program allowed borrows to purchase homes with their interest rate subsidized to a payment amount they could afford. Some borrowers were provided with a rate as low as 1 percent, based on their income.

Their income was reviewed every two years and the rate on their loan was adjusted accordingly.

When they decided to sell their home, the loan balance was paid and they were required to either pay the interest, which had been deferred, or relinquish 50% of the equity, whichever was less. This increased the effective yield on the loan. Most of the recipients of these loans stayed in their properties for a longer period than the national average.

There are an estimated 114,000,000 households in our country. If the homeownership rate is 68%, there are a maximum of 77,520,000 primary homes financed. (If every household was financed.)

(According to the 2005 census (http://www.census.gov/hhes/www/housing/ahs/ahs05/tab3-15.pdf), about 33% of owner-occupied homes are owned free and clear.)

If 8% of these loans were non-performing, that would represent 6,201,600 distressed households.

If the average mortgage is $150,000 then we have a total of $930 billion in non-performing loans.

(If only two-thirds of the homes in America are financed, there would be a total of $620 billion in non-performing loans. Currently!)

There is a second wave of problem loans that will occur between 2009 and 2011 of approximately the same magnitude as what currently exists. The largest percentage of adjustable rate loans will adjust in 2009.

Had the monies in excess of 1.5 trillion dollars, which have now been appropriated for bailouts and the stimulus package, been used to buy the loans of financially distressed homeowners, we would have accomplished the following:

1. Taken the non-performing loans off of the lending institutions and investors involved. Significantly changing their financial situation immediately. Most likely we would not have had to provide them with any money.

2. We would have received real property assets as collateral for the monies advanced.

3. We would be receiving payments and interest at varying rates for the invested capital. A substantial percentage of the loans would likely adjust upward every two years as our economy and employment improve. The interest collected would off-set the increased interest on the national debt.

4. Substantially fewer properties would be foreclosed.

5. The devaluation of properties would be substantially less.

6. Most families would be able to stay in their homes.

7. We would have a way to recapture some of the monies in the future when homeowners sell.

8. If the payment amount for these families was adjusted to a qualifying ratio, they would have disposable income to put back into our economy immediately.

Facilitating this would normally be a daunting task. If we assumed that a case worker could process 200 files to allow this to be completed in an expeditious manner, we would need 31,000 case workers. The major lenders probably already have close to this amount of employees already working on short sales and foreclosures. Let them process the file as a condition of our government purchasing the loan.

As a requirement for purchasing the non-performing loans we should require the lenders to process these files at no expensive to our government. (If they have to foreclose on these loans they are going to be receiving 50 cents on the dollar before this is over)

The lenders should also be required to service, review and adjust these loans in the future, at no expense to our government, since they are going to receive the full value of the loan and have already received a substantial amount of bailout monies.

I am sure that I am not aware of magnitude or intricacies of our current financial crisis, but this seems to be a better solution than the course we are on presently.

Additionally, there is another area that requires immediate attention if we are going to stabilize our economy and be able to increase disposable income to provide for growth. Our government needs to step in and force these same major lenders to reduce the usurious rates they are charging on credit card debt.

The rates of almost 30% that many of these companies are charging, if a card holder misses a payment, should be illegal. The maximum rates should be adjusted to a maximum of 5 or 6 percent. The enormous amount of interest they are charging makes it impossible for consumers to pay down their credit card debt. This interest is money that Americans cannot put back into our economy. These are the same banks that the tax payer is now bailing out.

Thank you for consideration of my thoughts by you or your staff members.

So fellow Americans, what are your thoughts?

Bill Wagner