Competition Can be Tough
pic by M_Drock
Breaking the Impasse on Foreclosures and Downward Property Values
The current problem to resolving the Foreclosure problem is the fact that there are just too many people dependent upon saying yes. Here is an easy solution to the problem: Scattered Site Cooperative Ownership.
The government can offer to anyone whom wishes to participate the ability to join the Housing Cooperative financed by the government. For the life of the loan the property is part of the Housing Cooperative. Allow all home owners to refinance their properties for all loans more than two years old at an interest rate of 4.5%. The loan can be selected to be a 15, 20, 30 or 40 year amortization schedule. This should include a first and second mortgage be able to be refinanced into one mortgage. Since the loans were already processed by the financial industry they should not require further venting unless the particular lending was charged with fraud. Remember the property is a long term investment and therefore as a Cooperative expectations are that the value would hold for the said period of time. Therefore, regardless of the current state of housing prices, it is reasonable to expect that over a 15 plus year period property values would increase on an average of 4% or more a year.
Home ownership is about permanency and becoming part of the community. There is not the intent to usually buy and sell in a short period of time. To buy and sell in a short period of time means the owner is speculating. Since ownership is long term than the fact that prices have fallen should not matter since the value is only critical if you want to sell or refinance for a lower rate. Variable rates are a bad choice when the rates rising is not within the control of an individuals ability to pay. Thereby, causing the implosion of defaults at the same time that individuals are losing their jobs. It is one thing to have to cut your expenses that you control, it is another to have them increase uncontrollably.
Investors may cry foul that homeowners get to turn in their current mortgages of higher rates for a better one but that is better for the government because we are all healthier for it, no one individual is chosen over another to help, economically monthly debt is reduced, investors receive their money to do whatever with it and the housing stock is stabilized.
If at any time the individual defaults the Cooperative takes control of the property and can sell the property to another individual for the outstanding balance or higher. An individual can leave the Cooperative by paying off the mortgage. The Cooperative does not sell its mortgages to another party. However, parties can invest in the government back Cooperative. The Cooperative would have as a goal to constantly create opportunities to provide home ownership for individuals on 31% of their income, which includes those making minimum wage. That would mean that a certain percentage of the housing stock has to be able to be based on monthly payments closer to $500.
Due to the fact that affordable housing is such a problem for most levels of income it would seem that the Housing Cooperative’s second goal would be to buy foreclosed property as any other investor to turnaround and sell under its Housing Cooperative at a price that is affordable. Thereby, creating a pricing ceiling for properties it would buy on the open market.
The only way for government and nonprofits to make affordable housing a norm is to compete with a preference provided to the mission. Either the private sector makes it truly affordable or they do not get the funding or property rights.
