“EASY MONEY” Loans

Lenders are shooting themself in the foot again. Industry wide, they are creating a problem that they seem oblivious to. The fact that the “tightening of the belt” on lending standards will not help this real estate crisis.

The lenders will continue to acquire properties via foreclosures from bad loans they put out. Rather than help those property owners already in those houses out and adjusting the current loan in place, the one currently doomed for foreclosure into a good, possibly profitable (under the circumstances) loan…… they foreclose. Then, they expect A DIFFERENT lender to loan money on this same house and take it from their inventory. Problem is, that the “other” mortgage company is in the same boat. NOBODY CAN BORROW MONEY! The amount of houses on the market in 2008 will grow in 2009. Who is going to buy them?

Unfortunately, those “EASY MONEY” loans that caused this mess and it will take a variation of an “EASY MONEY” loan to get things turned around. If not, the only ones profiting from the real estate bust will be investors, the same ones who made profit from the boom and bailed BEFORE the bust. Right now there are millions in danger of foreclosure. I’ll bet at least 1/3 would stay in the home they are in if the mortgage lender would #1) forgive the payments that the property owner is behind and remove those negative marks from the credit bureau, #2) adjust adjustable rate nightmares into manageable fixed rate loans and #3) adjust the loan amount owed to current values, thus eliminating negative equity. They can protect the loan with a pre-payment penalty if the owner does not stay in the home a minimum of 5 years. This will give lenders the possibility at least to not lose money in the long-run. IF values return, those property owners would have to pay a portion of the profit to the lender of offset their losses. They have a bad loan now, why not try and alleviate the inventory issue that is causing havoc on our industry.

All lenders need their own version of FHA or VA type loans to help move the inventory. Everybody wants to take risks (mortgage industry taking marginal buyers and giving them 100% loans), but when their profit sham goes away, they look to the Federal Government to bail them out. To me, the fastest way out of this mess will be for the US Government to step aside, let the chips fall where they may. BELIEVE ME, the lenders and lien holders on all of this available inventory would come up with solutions FAST if they know that was the case. They know this will never happen so they sit on their hands and wait for the government to bail them out.