We have programs to help underwater homeowners – the success of these is dubious at best.

We are very good at looking at a small percentage of the issue and crafting a solution for it; but have not looked at how to actually revive the purchase and sale of housing. Housing purchases are driven by FIRST TIME BUYER – they are the ones that fuel the market. 

We have made it extremely difficult, if not impossible, for that first time buyer to get a mortgage. In places where entry housing would be a condo – the restriction on FHA loans due to investor ratio prevents loans from being given.  Many condo owners have been forced to rent their property due to the fall in home values. So even if the owner could bring money to the table to sell or arrange a short sale – they either need a buyer with a considerable down payment or all cash – because you can’t secure FHA financing for the property.  I admit that this example is a small percentage of home sales.  In Urban Areas it’s significant though. And I’m not talking about the luxury million dollar condo.

Let’s use another example: I can’t say this is scientific  - but I went to realtor.com and grabbed a listing from where my Mom lives (Latrobe,PA – the home of Mr. Rogers and Arnie Palmer and Rolling Rock!).  3 bedroom and 2 baths listed at $19,800 – pretty much anyone breathing with even a full-time minimum wage job could buy it. Let’s try another one: (again from Latrobe) 4 bedrooms and 1 bath listed at $119,000 - might this be someone’s second purchase?  But they can’t get a buyer until someone buys their potential buyers first home. DOMINO EFFECT!!!

How do we get the first time buyer back in the market?

(1)   Ease FHA requirements – Investor ratios are important for urban areas  – and the ability to procure a low-down payment loan for any First Time Buyer is critical.

(2)   Give a property tax break for 2-5 years to a first-time buyer buying in that jurisdiction – compensate the local jurisdiction with a requirement of volunteer hours. You get your property tax bill: (a) if you’ve done your 50 or however many hours of verified service you pay X if not then you pay Y.  Criminals are given community service as a punishment – use community service for a good purpose: to put people in homes.

(3)   There is insurance to pay credit cards if you become unemployed – come up with a program for the first-time buyer (could be a low-interest loan repayable once employed again).  Paying 1 or 2 percent extra on six months of payments is better than losing your home.  This will go far to ease the buyer’s mind about economic .

(4)   Expand the eligibility of the Good Neighbor Next Door Program.  Good neighbors are not limited to Law enforcement officers, pre-Kindergarten   grade teachers and firefighters/emergency medical technicians.  A good neighbor is someone who provides service to the community – and could be the paralegal that volunteers with Legal Aid to help low-income residents or seniors.  Let’s expand our thinking here as to what makes for a good community.

I think we have all realized that housing plays a big part in the economy: Appliances are manufactured along with carpet, paint, etc… and a vibrant housing market starts with the first time home buyer.

(1) Many Small business start-ups use home equity to launch – and most people don’t have a lot of equity (if any) now. This directly impacts the number of NEW small businesses and the ability for an existing business to expand.

(2) Many small businesses start in the home – if ‘m months behind on the mortgage and worried about packing/moving and where I’ll live – becoming an entrepreneur is low on the list of priorities.

(2) Chicken or the egg – you can’t fix housing without fixing the economy AND you can’t fix the economy without fixing housing. – it needs to be comprehensive not piecemeal.

(4) Fannie & Freddie – we need to keep them. Markets can not function w/o them – pooling is the only way for the market to work efficiently – imagine trying to sell ONE MORTGAGE at a time to keep the cash flow going.. Stringent standards for the mortgages that go into the pools is a better idea.

(5) Tax foreclosure profits – this will force the banks to work with the homeowner and not pay tax on their profits (and there are huge profits – look at the banks’ balance sheets, dividends and earnings). They write the loss off in full on one side and don’t pay tax on the other side. They might be much more willing to work with the homeowner if it affects their bottom line.

(6) Form a REIT, the banks transfer their foreclosed properties to the REIT and these are then rented out and professionally managed. Puts these homes back into the housing market allowing people to be able to save to buy a home while renting (high rents limit one’s ability to save).

This was actually my reply to a post by Ron Phipps