Fannie Mae, Freddie Mac and Congress Are Destroying Families and America

Aug. 19, 2010 - PRLog -- Michael Picking is a good employee, father, husband and neighbor. He served his country in the Military and by all accounts he would be considered a great American citizen. He had a terrific job from 2001 to 2008 until his company decided to move out of Illinois to a more employer friendly state. His company wasn't large enough to offer Michael a relocation package so Michael was on his own to coordinate the move.

Michael did what he had to do in order to put all the pieces of the puzzle in place for the big move- all except for the sale of his home. He priced his home at what he thought was a fair price but after eight months on the market he had no offers. Michael owed $230,000 on a home that was now worth, to no fault of his own, $180,000. Michael maintained the property well and paid all of his mortgage payments on time every single month. Michael didn't do what so many Americans have done, stop paying their mortgage because of Negative Equity. The American dream was starting to feel like a nightmare to Michael.

After eight months of no income and no offers on the property Michael pursued what is commonly termed as a "Short Sale". A Short Sale occurs when someone sells a property for less than they owe the bank. To his surprise, when he called the bank about the possibility of doing a Short Sale, the bank told him that he couldn't pursue a the option unless he was behind on his mortgage payments. This was an anathema to him. He wanted to do the right thing, pay what he owed, sell the property and then buy a new home in the State he was moving to. If he pursued a Short Sale then he was locked out of buying another home. That didn't make sense but the bank wouldn't budge. It seemed as though the system was penalizing good behavior and rewarding bad behavior.

There is a better way if only Fannie Mae, Freddie Mac and Congress would start thinking!

The Negative Equity Carryover Model: A Practical and Effective Solution to Our Housing Crisis and the Epidemic of Negative Home Equity

Negative home equity for America’s Homeowners has become an epidemic problem. Nationwide, homeowners are chained to their homes unable to sell due to the shackles of negative equity. This lack of mobility comes at a cost to society at a time when the public’s need for mobility is at its greatest. Industry needs this mobility to balance labor requirements, labor needs this mobility to find and create job opportunities, families need mobility to consolidate households and care for aging relatives and others to simply downsize into homes that they can manage and afford.

Banks are resistant to negotiate short sale settlements for the fear that the losses on these mortgages will spiral out of control and bring the banks to their knees. Many borrowers are choosing to strategically default in an effort to break the chains of negative equity in order to get on with their lives.

Negative equity, short sales and foreclosures have become a lose-lose situation for both homeowners and lenders.
The Federal Government needs to create legislation making it practical and feasible for banks to offer a safe and equitable alternative.

The “Negative Equity Carryover Model” proposes that negative equity be carried forward to the purchase of a subsequent home purchase or as a personal loan to the homeowner after the property sale.

Homeowners and banks won’t need to negotiate the loss of equity as is currently being done through short sales and foreclosures. Negative equity can be “carried” by a homeowner as a second lien into the purchase of another home or onto a credit report as a personal line of credit.

The Model suggests that rather than write the loss off at time of sale through a short sale or foreclosure, the negative equity can be carried into the future as an independent debt/lien and slowly forgiven over an amortized timeframe. The homeowner’s credit would be saved and we as a nation could avoid the wholesale destruction and lockout of a future homeownership class due to damaged credit.

Lenders could amortize the negative equity over years while still maintaining some lien position just in case homeownership equity returned.

Gil Kerbashian Chief Market Analyst RealestateloanS.com Chicago IL (847) 873-7295