The analysts noted that lack of consumer confidence and cautionary spending would create even more loan defaults, as unemployment rates continue to rise and the housing market correction carries into 2010. They also foresee a potential rise in the number of borrowers who “strategically default” or “walk-away” from these negative equity loans to escape the underwater mortgage situation and improve their immediate financial situation, at the risk of being able to obtain mortgage financing in the future.

As foreclosure rates increase, once highly evaluated properties in a neighborhood begin to decrease in value, and some estimates put the loss of value as high as 9%. This depression of property values causes the remaining mortgages to go underwater, and creates a spillover effect on foreclosed properties and the generation of additional REO assets. An REO asset is one owned by a bank because it has not sold at auction, usually because the amount owed to the lender on the home is greater than the properties market value. This increase in “underwater” mortgages will inevitably lead to an increase in bank owned real estate. Coastal REO Solutions has many options and services available to lenders and banks to deal with these foreclosures, defaults and walk-aways. Contact us today to learn about all the options available to your institution.

…a simple two part solution that will not cost taxpayers a dollar out of pocket

With billions of dollars flowing into various industries and no apparent results or an end in sight, what is the answer? By now, everyone is aware the root cause of the economic downturn is real estate and real estate mortgages.

The solution is simple. The first part everyone will like. The second part will not be so popular, but is an evil we will have to live with.

First, we are all aware that outside of diminishing consumer confidence largely perpetuated by the media; the biggest trouble in the housing industry is SUPPLY. There are simply too many homes for sale! How do we cure this problem? We need demand and urgency…

If Congress would enact a law making every real estate purchase completed prior to December 31, 2009, exempt from Capital Gains, investors would flee the instability of the stock market and flood into the real estate market.

The demand comes from the investors leaving the stock market and others looking to capitalize on the exemption…they have to have somewhere to put their money.

The urgency comes from this being a ONE YEAR exemption. Any home bought in the 2009 tax year will not be subject to Capital Gains Taxes when sold – EVER. With people flooding back into the market not only will inventory/supply dwindle, prices will stabilize, homeowners will regain equity lost, and much more. With regained equity and stability, consumer confidence will be improved and people will start spending money again…and in turn jobs will be created.

The Second part needs a little preamble – A lot of you are going to say this is not “FAIR.” I will retort with my standard answer to this childish word – “NOTHING IN LIFE IS FAIR.” Fair is a word that should only be used by children because the concept or at least the execution of fairness does not exist in the real world.

On to the second part of the solution – Mortgage resets, troubled mortgages, and mortgages in some stage of foreclosure.

These properties are FLOODING the Real Estate market with “For Sale” homes that should not or do not need to be “on the market.”

Congress needs to pass a law resetting every home mortgage for owners that are more than 30 days behind. This means that the deficiency (delinquent payments) would be added to the back end of the mortgage allowing homeowners to get caught up.

Congress also needs to pass a law resetting every Adjustable Rate Mortgage (ARM) to a flat fixed rate in the range of 5.5% to 6.0% and extend out the mortgage term of the loan. This will help the homeowners who qualified at teaser rates, but now cannot afford payments that have increased more than 50%. To stabilize the market, we need these people to stay in their homes and keep them off the market. Is this going to save everyone? Of course not!  Some people can’t be saved and this is just another fact that proves nothing in life is fair.

I know your thoughts – What about me? I have been working my tail off to pay my mortgage on time. Why should they get a break and not me? Well, you are getting a break…just not one that is immediately visible. What good is it if you are paying your mortgage and four of the homes in your neighborhood go into foreclosure and sell at auction for FRACTIONS of their value? If you bought your home for $300,000 and 4 similar homes in your neighborhood sell for $200,000 – your home is not worth the $300,000 that you paid. It is now likely worth $200,000. So, with the loss of property value, your bank may freeze or cancel any equity lines that you have tied to your property. Are you seeing any benefit yet?

Are these two suggestions some magical cure for the economy? No they are not. However, these changes could be a strong foundation to stimulate economic recovery.

Just the ramblings of a Myrtle Beach, SC Realtor®