Imagine the American real estate market has just sustained a level five hurricane and is currently in grave danger of being washed away, leaving behind carnage and debris. The floods waters are rising, but there is hope that help is on the horizon. Is it enough just to pluck the survivors from the rooftops as the water laps at their feet? Or is there a way to actually put the housing market back on dry land?
Dallas has been fortunate that foreclosures have not overwhelmed the housing market and for now prices are holding steady. But it is a widely held belief that the economy went down with the real estate market and it won't make a comeback until housing can be stabilized. As the nation waits to hear President Obama's plan to help struggling homeowners, many analysts have differing ideas of just how that should be done.
A Los Angeles Times column this month focused on the role U.S. Bankruptcy Courts could play in the solution. Chapter 13 is a bankruptcy avenue for people who have fallen behind on their debts, allowing them to work out new terms on things like cars. However, Chapter 13 does not apply to mortgages on primary residences. "The absurdity of this rule should be self-evident. Loans on things that are comparatively expendable -- your boat, your vacation cabin, your Ford Taurus (or your Lamborghini) -- can be modified by a judge to help you hold on to the asset. But your home? Forget it. This makes sense only if you think you may need to keep the car so if you're thrown out of your house you can move into the back seat," said columnist Michael Hiltzik.
The problem with this solution is that mortgages would be perceived as a greater risk to the banks. While it has the potential to save thousands of homes--100,000 homes last year could have been saved through Chapter 13 by one estimate--it could also drive up mortgage rates. The current historically low mortgage rates are the one bright spot in this bleak housing market.
As of last week, many banks have agreed to a temporary moratorium on foreclosures while the Obama administration works out their plan. This is largely seen as a nice gesture, only delaying the inevitable. The number of foreclosures across the nation is estimated to have quadrupled in the last eighteen months. By some estimates, there could be as many as five million homeowners hovering on the brink of foreclosure in the coming year.
According to CNNMoney, Treasury and federal housing officials met last Wednesday so that the administration could listen to proposals for how to address the mortgage meltdown. The need for a standard model for mortgage modifications was stressed, with the suggestion being made that bailout money be used to help delinquent borrowers. Both Treasury Secretary Timothy Geithner and President Obama have said that $50 billion of the original bailout money would be used to help struggling homeowners.
Another solution offered by a national homeownership program, NeighborWorks America, is to reduce mortgage payments to be a certain percentage of a borrower's income, capped at around 30 percent. Yet other analysts think adjusting mortgage rates or forgiving principle is the solution.
But the grimmer sentiment held by many is that there is no fast fix to stop the flood. The water keeps rising because the problem is complicated. The real problem cannot be solved by banks, because the banks no longer actually hold these mortgages. The mortgages were long ago broken into pieces and then bundled into complicated investment vehicles that zoomed around the world. While people feel frustrated from Main Street to Capital Hill that the solution is not coming fast enough, the soggy reality may be there is no dry land is sight.
Author Resource:-
Inside Dallas is a small company that operates a website that covers Dallas real estate. They also have a blog with monthly updates on the Dallas real estate market.
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