The following article was written on October 9th, by Dave Liniger, Founder of RE/MAX on his real estate blog. Enjoy.
A Model for Recovery
Lately, everyone is wondering how the government’s bailout plan is going to work and I’ve received a lot of calls from people wanting to know – “How will this help the housing industry?” It’s difficult to know how this plan is going to work, especially since a new administration and Congress could change whatever it is to something else.
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| LINIGER |
No one who knows me thinks that I favor government involvement in the business sector. However, the current economic situation requires some quick, bold action. It’s not normal or preferable, but these are not normal times. I feel that appropriate government action is required to restore confidence. Otherwise, the current situation could drag on for years and cause significant hardships for consumers.
The government seems destined to acquire or guarantee the so-called “toxic” paper, and will facilitate work-outs or modifications for struggling borrowers. At this point, I’m not sure exactly how this will be accomplished, but I can tell you there is one plan out there that I think should be a model for this process.
As a result of several lawsuits against Countrywide, Bank of America inherited the task of settling with attorneys general in 11 states. (Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington). The resulting settlement, announced this week, is a realistic strategy that offers a blueprint for other lenders and the government, who have already begun calling BoA to learn the details.
The objective of their plan is to pay the price for keeping American families in their homes and not add to the number of foreclosures in the marketplace. For 11 states, BoA will pay over $8.6 billion to resolve nearly 400,000 mortgages. They will lower interest rates, reduce principal and forgive penalties.
In the long run, the price for modifying these mortgages will avert many potential disasters. We cannot afford to have growing inventories, which only serve to reduce prices and equity. If the government dumps large numbers of REO properties on the market, millions of people would be displaced and entire neighborhoods could suffer a negative impact. My hope is that we can avoid such a disaster.
The economic crisis won’t be resolved until the housing crisis is resolved. And I think the best road back to normal is to immediately reduce inventories. I will do everything I can to promote a reasonable resolution to our problem, and I believe that can be found in policies similar to those proposed by Bank of America.
Thanks,
Dave
