Time for Uncle Sam to Step Up for the Responsible Homeowner
Just about all of the media coverage, as well as the government assistance programs and relief regarding homeowners -from foreclosures to short sales and everything in between- has focused primarily on those individuals who were defaulting on their loans, or were about to. The media has given so much attention to these individuals who either got in way over their heads, or couldn't manage to keep up with the adjusted rates of their mortgages and decided to stop making the effort to even stay in their home.
Of course, there were many who simply couldn't keep up, but there were also a number of homeowners who heard that the government was going to 'bail them out' and decided, rather than make the effort, it would be better to sit back and wait for Uncle Sam to come to the rescue. While these latter homeowners may or may not have received the help they needed -such as having mortgages restructured to work within their earning capacities or forcing lenders to accept a reduced value on the home- there has been a population that has been completely ignored to this point.
And that's the responsible homeowner who is still struggling to make ends meet.
Being upside down doesn't mean default
As we are well aware in this industry, there are millions of homeowners who are 'upside down' on their mortgages, meaning they owe more than their homes are now worth. Yet these responsible homeowners continue to make their full mortgage payments, still pay their taxes, and do everything they can to remain in their homes and to protect their positive credit rating. They are also footing the bill for bailing out all of these other homeowners who weren't as responsible.
So where is the relief for these people? Where is the government advocates coming to their aide? Strangely, it has been relatively absent, but one man by the name of Keith Gumbinger, believes it is high time for the government to make a stand for those homeowners in this country who have been responsible, who didn't buy homes larger than they could afford, who have equity in their homes (or had equity until the assessed value dropped), and have managed to struggle mightily and continue to do so because they are -pardon the repetition- responsible.
While Keith Gumbinger's plan has flaws that would need to be worked on, the basic core of his proposal is that the government could step in and guarantee loan values that are the difference between the loan amount owed and the new, lower assessed value of a home. While the homeowner will be granted a new mortgage loan at the new assessed value of the property, they will still be responsible, ultimately, for the full value upon sale of the home.
If these homeowners do not maintain their new mortgages, for whatever reason, then the government is guaranteeing the lenders the difference. For example, a home that was purchased for $400,000 in 2006 that is now valued at $320,000, would be an $80,000 drop in value. If the homeowner has $40,000 invested already, then the government would step in, guarantee $40,000 and the bank would refinance the mortgage for $320,000, at the historic low interest rates that we are still witnessing throughout the industry.
But at what cost?
Of course, there are no concrete numbers to measure what this kind of plan would cost the American taxpayers, but one would have to think that it would be far less than if these people simply gave up trying to keep their heads above water and let the homes go to foreclosure. The problem is that it seems that when you're responsible, you get stuck footing the bill for the rest of the irresponsible people in the country.
Keith Gumbinger has a great idea and perhaps with some discussion and some advocating for it, the U.S. government might just listen for once.
David Reinholtz is a professional Mortgage expert in Real Estate Industry .David is also a sales and marketing expert and trains professionals in every career field. David has personally trained tens of thousands of loan officers, mortgage brokers, real estate agents and individuals through The Close More University Seminar Series, LoanOfficerSchool.com Classes , Correspondence and On Line Learning, and countless private engagements and training events throughout the country.
David is the Founder and CEO of LoanOfficerSchool.com, an approved education provider for The Conference of State Bank Supervisors and The National Mortgage Licensing Systems' (NMLS) required pre-licensing education and continuing education.
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