Despite a national, downward trend in foreclosure rates, too many struggling Americans continue to lose their homes, placing families and the economy at risk. Recovery has been uneven, with some states, such as Oregon, faring better than others. This is due to a variety of reasons, including locally enhanced legal responsibilities imposed upon lenders, higher-than-average home sales and decreasing unemployment rates. Other states such as New York, New Jersey and Florida continue to see people struggling greatly and often failing to hold onto hearth and home.
An end to the foreclosure crisis is urgently needed, yet President Obama failed to include mention of this seminal issue during his inaugural speech in January, causing concern to both homeowners and hopeful homeowners nationwide. Despite opposition from both congressional Republicans and the banking system, the current administration can, and should, do better. There are several ways both the president and congress could promote a housing market rebound.
End the reign of Edward DeMarco and help pay for principal reductions.
America's favorite villain, Bush-era throwback DeMarco continues to sit as acting director of the Federal Housing Finance Agency (FHFA). DeMarco's job is oversight of Fannie Mae and Freddie Mac, who either control or outright own at least half of all mortgages in the U.S. DeMarco's ideological opposition to the lowering of mortgage loan balances, or principal reduction, stands in the way of Fannie and Freddie resetting current mortgage interest rates on their loans to fair market value, a move that could potentially remove the foreclosure threat from thousands of families and also save significant tax dollars.
An obstacle to change, DeMarco flatly turned down an offer from the Obama administration to help partially pay for principal reductions on Fannie-and-Freddie-backed loans. He also turned down the Treasury Department's offer to cover some of the costs of principal reduction through the Home Affordable Modification Program's Principal Reduction Alternative, a program designed specifically for homeowners who are deeply underwater, meaning they owe way more on their homes than what those homes are currently worth.
The Obama administration should also promote acceptance among lenders for the under-utilized Second Lien Modification Program, which could help those eligible to receive principal reductions on their second mortgages.
Obama's action list? Show DeMarco the door and offer to ante up payment for full, rather than partial, principal reduction programs. Currently, DeMarco and the FHFA allow Fannie and Freddie to utilize principal reduction programs only if all of the money utilized comes from another source. That other source could be the Treasury Department's Hardest Hit Fund, a program established by the president to help families residing in the worst-hit areas of the country, with the highest numbers of underwater mortgage holders.
Do better than pay lip service to refinancing programs.
Two existing programs, the Federal Housing Administration's Short Refinance Program and the Home Affordable Refinancing Program (HARP), could and should be more widely utilized in an effort to bolster up the housing market and buoy the general economy. These could make refinancing more readily available to homeowners currently paying out higher-than-average market rates. The Obama administration should put both programs to increased, widespread use, keeping in mind that at least three million underwater homeowners are and will remain ineligible for these existing programs, despite the fact that they consistently pay their monthly nut on time.
Obama's action list? Better utilize the programs that are in place for those who can benefit from them and instate new refinancing program options for those who are not, such as those currently being floated by Senator Dianne Feinstein (D-CA) or Jeff Merkley (D-OR). Both potential programs could save countless families from losing their homes while simultaneously boosting the economy.
So, does it make sense to buy?
Market trends aside, there are a number of factors to consider if you wish to buy a home, whether you are looking for a starter house, considering a geographic change or making a trade-up to larger quarters. We still are in the midst of a slow-growing economy and employment gains have been less than brisk. Your employment history, as well as your credit, are significant factors to take into account. If you currently have a bad credit rating, the interest rate on your mortgage will be high and it may make sense for you to work on your rating prior to buying and sock away some cash in the meantime.
Predictions vary on upcoming mortgage rates but many economists believe they will rise slightly during 2013 in response to slight, yet steady economic growth. Another factor to consider if you are a current renter is the rent spike occurring in some urban areas. If you live in an expensive city, owning may actually be cheaper than renting, provided you are ready to make the leap. Overall, local markets as well as recoveries vary widely but buyers markets do exist. If you are looking to buy a home in cities such as Chicago, New York, Cleveland or Philadelphia, this may be a very good time to go for it.
Or, does it make sense to sell?
Despite your geographic location, if you are currently underwater, your best option will be to proceed with a short sale. Discuss this choice with your lender, CPA and attorney to determine how to move forward with your plans. If you are not underwater and are planning on selling your home, you may be in luck if you live in various locations in the western U.S. It is currently a seller's market in a number of warm-weather areas, including Las Vegas, San Jose, Phoenix and Seattle.
We all grew up hearing the cliches. Your home is your castle. Home is where the heart is. Home ownership is the American dream, and everyone's birthright. The realities of the last few years have certainly dashed blue-sky thinking about home ownership, yet we are seeing national gains in job growth and an economy that is slowly starting to rebound. While a variety of factors will continue to affect the housing market for years to come, cautious optimism for the future may not be an unfounded reaction.
Corey Whelan is a freelance writer in New York. Her work can be found at Examiner.com.
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