U. S.

HOUSING RECOVERY As a citizen and retired realtor of the great state of Michigan, I had a front row seat in the demise of Michigans real estate market. All states have not suffered as much from the housing bubble burst, but certainly Michigan, Nevada, California, Florida lead the pack. The downward spiral started in the mid 1990s gold rush of real estate with zero down buyers, no-doc loans and mortgages gone mad. Then came September 11, 2001; the day that shook both our economy and collective confidence. In addition, the decline of the Big Three automotive industry era increased unemployment and further weakened Michigans economy. When times go bad, the sins of the past become glaringly evident. Of course, the total melt down in October, 2008 not only burst the housing bubble but left a crater of unforeseen and devastating consequences. While bubble housing prices could not and should not be sustained, the severity of the bubble deflation, combined with a credit driven recession, has forced an over-correction to the housing market due to the excessive inventory, bank wariness on lending, and mismanagement of the appraisal process. Prices continue to head south in many markets, and something needs to be done to stabilize them at reasonable and sustainable levels. Federal programs targeted at restoring the housing market have not helped much. Low mortgage rates make houses more affordable, but if you need to sell a home before you can purchase a new house, you face the dilemma of an underwater mortgage or negative net proceeds. First time home buyer tax credits probably helped marginally, but mostly just accelerated sales from later periods. HAMP, HARP and similar programs are so fraught with landmines of qualifying and bureaucratic processes they have proven ineffective. What needs to happen to spark a resurgence in the housing market? Denoted below are some suggestions: 1) Why not promote the selling/buying of homes by credit worthy, capable, and trustworthy families that have paid their mortgages and maintained their homes, but through no fault of their own, are stuck with problematic

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mortgages. To do so, I propose a two-year incentive program for qualified creditworthy sellers who face a short sale, that the amount of the shortfall (including the real estate commission) would be rolled over to the new home purchase/mortgage and the interest rate for this added principal subsidized by Federal assistance. This would have several benefits: 1) The bank/lender would not write off the shortfall; the sellers obligation to pay the original obligation would be maintained; 2) Home sales would be stimulated reducing bloated inventory, and 3) Would raise consumer confidence and families could get their lives back on track. The funding would come from directing existing Federal assistance programs that are ineffectual and would be shut down. How would the numbers work? Suppose a seller accepts a $150,000 offer from a qualified buyer, but the seller owes $175,000 on the mortgage. The appraisal in Michigan under current conditions could be substantially lower, but under the new proposed appraisal policy, the appraisal would be set at selling price of $150,000. The seller would carry the $25,000 short fall plus real estate commission to a second mortgage on the newly purchased home, and pay an interest rate 2 percentage points below his first mortgage rate (approx. 2.8% today). The Federal Government would pay the bank the additional 2%. The second mortgage would be amortized over 15 years, payable in advance without penalty, and include a due on sale provision. The homeowner is then free to use the money they have saved toward a down payment, closing costs and pre-paids on a new home. Lenders and underwriters need to adopt a new appraisal process that excludes foreclosure sale prices in calculating appraised values, and sold price information would not be disclosed to the general public. These practices have helped to drive down home values below basement levels. A foreclosure is an extraordinary event and should be treated as such. Sellers who are not underwater should have the option of rolling over their commissions to a new mortgage, without Federal subsidy. If people walk away from a home and their mortgage obligation and stripmine and destroy the property on the way out, they should be chased down and prosecuted no exception. It wouldnt be a popular policy but

its the right thing to do. The money lenders would save on not writing down all the short sales could be turned into hiring people to chase the offenders a win-win. Now for the uncomfortable conversation personal responsibility. There are homeowners that walk away from their homes simply because their home is not worth what they paid. They havent lost their jobs; they can still pay but choose not to do so. Let me stress that Im not referring to those suffering real hardship (those unemployed, ill, etc.). But for those who bemoan, Why should I pay for the short-fallothers just walked away its not my fault let me remind them of the day they closed on their home the little thing called a NOTE whereby they gave their word they would repay the money loaned to them? The majority of decent, bill paying citizens are penalized by subsidizing these individuals who by their deliberate actions lower their neighbors property values and destroy the financial infrastructure of entire communities? If people can pay they should. If they dont pay they should be prosecuted and not be given forms for bankruptcy. If the legislators, the people who can introduce and enforce change, will stop tolerating this destructive behavior, the craziness will stop, if not radically diminish, and we will all be better for it. I must digress: It is imperative that every city/township and local government body in the state should be subjected to a thorough review of pay schedules and retirement plans for their local officials and union employees. This will become a looming problem in the very near future when cities are bankrupt and the common, uninformed citizen asks, How could this happen? Where is the oversight? Finally, if economists are correct that our problems started with the housing problem and will only end when the market returns to normal, our focus should be in finding innovative solutions for the housing crisis to expedite its recovery. Anita and Robert Crumley January 13, 2011