Last night there were reports about the Fed considering more mortgage buying as a way of stimulating housing.A real estate broker — who obviously has his biases — offers up an idea for a better solution.
I am going to give you my perspective from a real estate angle rather than a mortgage angle. I can see the advantages for the mortgage rates. That is fine.
BUT… it does nothing for real estate and that is MORE important for the economy than the (current) mortgage rates.
Here is what I think should happen, and I may not have complete enough numbers to show actual, but the gist of it is this:
1. Fannie and Freddie should refinance directly (not using banks) most if not all owner who are under water. I understand there is individual work to be done , case by case, but it is not that hard to figure out.
2. Refinance those owner using the 10 year treasury rate, plus costs. That could be in the 2.5% range
3. The Fed should buy those MBS’s from F&F
4. This would certainly reduce drastically the foreclosure rates, and keep housing market values up, rather than down.
5. There could be a max LTV they would actually do. That LTV should be calculated on the DTI, not the real estate value.
6. F&F have to “change” their new underwriting guidelines. An example would be that they should accept doing a loan for a buyer of a condo when that condo is in a building where more than 10% is still owned by the original developer. There are many more stupid rules by F&F that prevents buyers from being able to get a loan. Perfect buyers for that matter.
7. Stop banks from being able to do bulk REO’s. That process makes no sense for anyone EXCEPT their friends on wall street who buy these 100 mil packages at 60cents on the dollar, and then turn around and sell, split up, for 85 cents on the dollar. You and I cannot get to these deals.
Here is what I think could happen:
1. Real estate values would stay up, thus much less people would go under water thus less people would walk away.
2. That in turn would NOT decline real estate values as there would be many less REO’s and foreclosures.
3. That in turn would release some banks from potentially toxic assets.
4. That in turn might banks want to do more regular loans again, as values are much more stable