March 3rd, 2009 11:00 AM by Lehel Szucs
Consumer confidence is down. Mine would be too if I thought I was loosing my home. The number one thing we can do to help this economy is to keep people in their homes.
When folks are concerned about loosing their home, they stop focusing on anything else. When folks loose their homes it creates a whole new set of problems for that family, that neighborhood and then the community as a whole. If Joe's house is lost to foreclosure all the other homes on the street loose value, Joe and his family have to move, the kids have to maybe change schools and friends. The families left behind on the street have lower property values and that limits their choices on how best to deal with any financial concerns they have.
How do we stop the bleeding? How do we return some level of confidence? We stop as many foreclosures as we can. It may not be fair that my neighbor who may or may not have bought beyond their means gets help and I do not but it is good for everyone if folks stay in their homes. If my neighbor is able to refinance his house for a lower interest rate, not a forgiveness of debt but a restructuring of the debt, then he can stay, our property value holds and best of all community confidence begins to build. Joe feels he is working toward something rather than fighting a loosing battle.
As a Real Estate Consultant and a Realtor, I have seen this so often. Here is a perfect example. I spoke to a family that owes about $120,000 more than her home is worth. The payments are going up again on an over 9% interest rate loan. They knew they were going to have trouble with the new payments so they were proactive and called the mortgage company to try to work something out. The mortgage company would not talk with them unless they were three months behind on their mortgage!! So they did not pay their mortgage for three months. They called the mortgage company again, now they were told that the file was being sent over to begin foreclosure! They inform the mortgage company they want to stay. They ask for a rate reduction. That would be a win win. They were not asking to get any of the amounts forgiven. Just a lower rate that would allow them to be able to make the payments. They asked for 7% (which is still above today's market rate). That would allow them to stay and the bank to have a performing loan! The mortgage comapny said no. They mailed in the keys and moved.
Now what happens? The bank will spend thousands on winterizing the home and on legal fees. They will pay to have the property managed and then sell it for well under the loan amount and pay a commission to do so. The vacant property along with the eventual lower sales price brings down the value of all the homes in the area and confidence is again shaken. Not just for the folks who have lost their home but for all of us.
Now what happens? With a foreclosure on their record our folks will not be able to buy a home for a few years. Less buyers equals higher inventory and lower home values.
Keeping people in their homes is the number one thing we can do to help all of us.