BluefoxToday blog : New ideas needed to energize rough real estate market

New ideas needed to energize rough real estate market

Whatever Washington has thrown at the ailing housing market so far hasn't had much of an impact. The latest plan was called TARP, the Troubled Asset Recovery Program, that has done very little to stabilize the messy situation. It has cost untold billions to no avail. The key still appears to be to halt foreclosure growth that would then help stabilize prices that in turn would lay down a firm foundation where the housing market can stand on.

One avenue to arrest foreclosures is to work with the investor community that owns mortgage-backed securities. About two-thirds of home loans out there were securitized into bonds and are now in the portfolios of large-scale investors. Earlier work-out plans by Fannie Mae, Freddie Mac, Citigroup and others haven't made much of dent at all because the contract terms of these bonds prevent any adjustments without the bond holder's permission. They would lose money if they accepted new terms and therefore have refused to play along.

Instead of pouring truckloads of money into banks why not offer the mortgage-backed security owners a subsidy so that they would then have incentive to go along with modifications with a bite. All it would require is to shift some of the already allocated funds into this sector. This idea would bring under the same umbrella a large chunk of outstanding mortgages that could be massaged accordingly to keep distressed borrowers in their homes.  

Arresting the spread of foreclosures would go a long way in keeping home values from sinking further and that's what this market seems to need more than anything else. The investors might be the solution to it.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 18 commentsEsko Kiuru • December 13 2008 10:52PM


What the market really needs is someone with some sense to come to the rescue. The morons in Congress are way out of their league.

Posted by My360Pix Virtual Tours (My360Pix Virtual Tours) over 10 years ago

Esko- I believe that the house values still have to drop here some more. That is the nature of real estate. It goes up and it comes down.

I was not for any bailouts at anytime. It is playing favorites, where is my bail out for a small business that is struggling, where is my loan mod for paying my bills on time and not going into foreclosures like folks around me have done?  I work with short sales every day,. Our area is very wealthy and I watch people leave the keys on the table at one house and then go across the street and buy their same model for 1/2 the price, let the other one go into foreclosure without an morsel of integrity. I see people paying their Escalade payments instead of their house payments. Until the people learn about personal responsibility, accountability and priorities, things are not going to change. Our parents and their parents bought homes with a goal of paying them off in 30 years and living mortgage free. People today treat homes like a stock. Katerina

Posted by Katerina Gasset, Get It Done For Me Virtual Services (Get It Done For Me Virtual Services ) over 10 years ago

It sounds like a plan worth a try. And in the scheme of things it probably woul only be a fraction of the huge bail out funds.

Posted by Maggie Baumbach (Search Homes for Sale in Maryland at over 10 years ago

Unfortunately we don't need any more price reductions here in the valley because it just creates more foreclosures.  The whole thing is a big sucking tornadic like storm and it is just getting larger and larger.  I am really starting to get scared here about mindsets.  It started with speculators, went to buy and bailers and it just sucks up more and more people.

I don't believe for one minute that it had to do with "toxic" loans like the media has us believe.  It has to do with people losing value in their homes and just having to let them go.  If they didn't buy during that time frame they took out insane amounts of money - many times in the tune of 100s of thousands of dollars.  Why wouldn't a house be easy to throw out like yesterday's trash if they got what they needed out of it?

I wrote on your blog last week or two weeks that my bpos have slowed down quite a bit.  Since then I had a rather large order.  I am amazed about the percentage of occupied homes now vs when I started doing them almost two years ago.  I would say 90-95% were very obviously occupied.  The number was inverted two years ago where only 5-10% were occupied and then they were mostly tenants.

Are people now defaulting to try to get loan mods?  That's what the media is telling them to do if you read between the lines.  More often than not these homes were also well cared for with this batch. 

I always try to stay one step ahead of the game but this game keeps changing too quickly!  More new types of defaults and now we will be seeing new underwriting challenges when the new profiles are created.

Seriously, while doing those BPOs I found out Charleston Heights has 103 single family homes under 100K.  Those are 90s prices now!  They are also priced at 20-25% of their defaulted purchaser.  They were selling at higher prices but these noteholders keep shooting themselves in the feet everytime they undercut REO competition down the street. 

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 10 years ago

how about an interest rate top-up for investors who buy or hold those securities.  Or have the government place a guaranty on the return portion of the investment, but not the principle.  That would be cheap and easy for them to do and help reassure investors somewhat.

Posted by Robert May, Real estate consulting (Robert W May - Lethbridge Real Estate) over 10 years ago

Esko, I would have to think a little more about this, but at first look I like your idea.

The only positive thing that I have seen come out of all this is that rates have dropped again, but it will take more than lower rates for us to dig out of this hole.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago


Thanks for stopping by,

Posted by Esko Kiuru over 10 years ago


Excellent observation about the real estate market today and what it could be.

Posted by Esko Kiuru over 10 years ago


Hopefully someone is paying attention.

Posted by Esko Kiuru over 10 years ago


Anyone who wants to know about Las Vegas real estate ought to read your comment. Thanks.

Posted by Esko Kiuru over 10 years ago


Good ideas. Anything that would get the investors to accept contract modifications.

Posted by Esko Kiuru over 10 years ago


Glad to hear that you agree that lower rates alone aren't the solution.

Posted by Esko Kiuru over 10 years ago

Esko- the media are such liars and biased reporting all for their agenda. It is hard to know who to believe anymore. We need to get control back to the people. Start with term limits!

Rene- I so agree with you! You are right, thousands of people here were wanabe investors, speculators, and then there are so many more using their homes as ATM machines. Sad but true. Let the chips fall where they may- allow the market to correct itself. Don't save the foreclosures, I am paying my payments no matter in good or bad times! Don't punish us, the ones who pay by having to dole out more tax dollars to help those who made bad choices!

Posted by Katerina Gasset, Get It Done For Me Virtual Services (Get It Done For Me Virtual Services ) over 10 years ago

We are looking at it through our eyes, but think about it from an investors point of view. These companies laid out trillions of dollars for a promise to be repaid at a certain interest rate. These investors and funds often CAN'T modify the terms of their agreements because with less cash coming in, their own loan covenants would be in jeopardy. I agree with Nestor, why punish the savers and people that worked so hard just so the people who took out interest only and 125% loans and got in over their heads can get a free ride? If we do this, we are just putting off the correction further down the line. The thing I fear is that the public at large will catch on to these modifications.  If millions of people figure out they can get, in essence, free money by not making their mortgage payments, where will that put us?  The market always corrects, the question is, do we want to get the pain out of the way now, or have even more problems in the future? 

Posted by Brian Griffis (Realty Choice) over 10 years ago


Term limits will get my vote.

Posted by Esko Kiuru over 10 years ago


The investors have to have a say in finding a workable solution.

Posted by Esko Kiuru over 10 years ago

Esko: Only time will heal our ills. The bailout stuff was always too little too late and, therefore, a bandaid. I expect spme areas will start to see improvment in 2009 and a nice recovery should be underway by 2010. In the meantiome, I'm planning on hanging in there as I believe the next 6 months are key. Take care.

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) over 10 years ago


That's the plan here, too, to hang in there.

Posted by Esko Kiuru over 10 years ago