(also taken from my other now defunct blog posted to the new one to enlighten all!)
October 20th 2008
Foreclosures are on the rise and what should we do about it?
Well real estate Armageddon is here (well some people want you to believe that), and there are more vacant homes in a neighborhood than occupied. Can be scary and no the federal government won’t be the direct solution. I have submitted (since 2006) a program to the city of Riverside that I fee is a very unique and innovative solution to an ever growing crisis.
The homes need to be available at even lower rates than we have now, and we need to treat them as actual sales. What I mean by that is, if we help lower to mid income people get into the house it needs to be in good neighborhoods, not low income housing districts. And we need to have the owner actually on title and not showing the title in HUD or some other government agency. This way the new owner has pride AND responsibility in the game. This is not that original, down payment assistance programs have been around for years, they obviously have not solved the problem.
My approach has a twist, of course not divulging everything AND It would take too long on specifics; they have to refinance at market rate in 3 years and the city housing authority carries the paper for 3 years and is paid back in full at the end in order to do it again. During the three years they make full payments (no options, no adjustable, no interest only) principle, interest, taxes and insurance. The interest can be 3-4% (not sure), that way it won’t be payment shock at the end. During the 3 years however they must continue to upkeep the property, they cannot rent it out, they cannot sell, and they cannot further encumber it. They must have a budget seminar before and every 6 months must show attendance at further education such as home improvement and repair workshops, how to workshops, and finance workshops. They must be bettering their position somehow or they will never join the rest of us. If they learn how to take care of their house they take more pride in the house, if they have to make the payment just like everyone else, then they are not on the public housing welfare system and can take pride in that. The workshops are available now through Lowes, home depot, the county, HUD, Bank Of America etc…. these exist but no one takes advantage of them, here we would require it.
Again, there are elements of ownership, pride and responsibility. They have skin in the game as we say. This differs from other programs and the no down interest only crazy loans we had before. They had no stake and it didn’t matter to them after purchase. Here they have accountability and continuing education to better themselves and their neighbors. if they fail to pay they get foreclosed on just like everyone else, and the home goes to another on the list. One of the biggest aspects and selling points is the fact that the city gets paid back at the end to do it again and gets the interest on payments to help administer it (my company actually wants to administer it for 1% service fee). This too differs from the down payment assistance grant programs, once given it is GONE, never to come back again. Our agency (or another broker) will help select the homes and process the loans and escrows (which is what we do already) NOT the federal government who have no idea how to do it. The people in the program, would come from the waiting list from the city and the monies come from the feds or the city directly. THAT way the local governments can control the purchases and what happens to them and where it happens. Unlike federal programs where the city housing board is not in the loop and neither are the local brokers.
I have submitted this idea with an executive summary to every city council member and many other influential persons since 2006 with very little movement. So we will see, hopefully the city does see the crisis we are in and responds appropriately. On the flip side this is probably the greatest buying time of our lives and buyers can get unbelievable deals on homes that EVENUALLY will rise again in value. So in the mean time……to be continued……
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