The home foreclosure situation is a daunting problem. As a nation, we need to examine the root of the problem, explore available options, implement new ideas and programs that have the best projected outcome and then review to determine successfulness of the changes. Before becoming an educator, I was a mortgage loan officer. I know, first hand, how stressful purchasing a home can be and the frustrations that hang on financial hardships and refinance loan packages. I welcome this opportunity to voice my concerns and ideas in regards to this foreclosure battle.
Understanding what caused this failure is the first step to fixing it. Real-estate and mortgage professionals are under extreme pressure to ‘make the sale’ even if it isn’t within the buyer’s budget. Minimum down-payment loans with high loan-to-value ratios added to the default risk because equity was not building in many of these properties. Buyers could qualify for much larger mortgage payments without having any resources to fall back on when times got rough.
Unfortunately, the result was that people were buying ‘too much house’ and stretching their dollar to the snapping point. After these new homeowners settled into their homes, often they were unable to recover from the financial drain of closing escrow and also faced with maintenance cost, climbing utilities bills and purchasing furnishings beyond their means. Add the challenges in the job market and the declining economic climate and you’ve got bankruptcies and foreclosures.
The list of bank owned properties continues to grow causing many families to leave their homes in search of affordable housing. With their credit damaged they are unable to qualify for a new loan and forced back into the rental market. These foreclosed homes often sit unoccupied for months or years waiting for a new buyer. We end up with families renting when they really want to own and empty properties waiting to be sold. This situation is extremely costly for the banks and mortgage companies and is pulling overall property values down. This spiral is compounding with every new foreclosure.
My idea is the Trade-Down Home Exchange Program. It’s really very simple. When a family is headed for foreclosure they would be put into a data base with a reasonable budget for homeownership which would include maintenance, utilities, and a rainy day allowance for emergencies. Their home would also enter this data base and be given a budget requirement to sustain ownership of that property. These buyers would receive credit counseling and be allowed to apply for the purchase of a smaller home within the data base. This new transaction would have to make sound financial sense and would have to fit well within the established budget.
Then the home they couldn’t afford to keep would be matched with a family that could not afford their home but could afford this smaller one. So there would be a trading down movement with these homes instead of a close up process.