With the current mortgage crisis upon us, I have some general frustrations that I need to air out.

First of all, I love being a home owner.  Erin and I enjoy our house greatly and wouldn’t trade it for living in an apartment for the world.  It truly is the best way to invest some of our money.  We bought in December of 2005, right towards the end of the "housing boom".  And of course we got the whole speech that I am sure every new homeowner got, "Your house will be worth so much more in two years."  So we bought the most home we could afford and here we go. 

We were smart, we went the old school 30 year fixed route.  I had already heard of horror stories of adjustable rate mortgages hitting people hard, and I am more conservative with my money.  I want to know what my payment is going to be every month.  Thank you very much.  On to the dilemma.

There is a real problem in the housing market right now.  Some people, I don’t feel all that sorry for really.  People that bought homes just to make a quick buck and that now can’t make those payments, I feel no sympathy really.  Those people are one of the driving forces why houses were so far off center now.  They made it so ordinary people couldn’t afford houses.

So the Fed cuts rates that are suppose to make lending easier.  Here is the only problem with that.  There has been no mortgage lending reform to go along with it.  If my understanding of mortgage lending is correct, and I believe it to be, you are loaned money based on the value of the home you are purchasing.  Amazing enough during the boom, people were able to get their homes to value out at "whatever number" it needed to be at for the loan.  Hence another problem I will address later.  With the quandary of lenders giving you money based on the value of the home, how are people that are upside down suppose to refinance?  Why would any bank want to reloan you $250,000 to pay off your current mortgage, when the home you are using as collateral is only worth $200,000?  I wouldn’t if I was a bank, and that is why these loans and rate cuts just won’t work.

I suggest a more active mortgage reform.  Obviously, banks need to make money, and they make money on interest on loans.  They have a vested interest in the homeowners they lend money too.  So, why not make it easier for people to pay their loans?  In the insurance industry, we say your best customer is the one you already have.  You keep them happy, and they won’t leave.  They take less upkeep and usually will pay their bill every month because they are happy for reasons that you have established when they choose your service. 

I propose all banks cutting their rates for mortgages at least 1% to maybe as much as 3% and offer this to their existing customers that have had a loan for 2 years or more.  Regardless of what they owe or what the house is worth.  Should the customer want to refinance, they can.  No strings.  We are just going to lower your interest rate, and your payment every month.  Now, of course the banks need to protect their customer base, and in this case I would be willing to concede to the banks a clause in the mortgage that you must not refinance your loan or sell your home for a period of 3-5 years if you are on a plan like this. This allows them to still make money off of the interest of the loan, albeit at a smaller amount. I think any bank would rather have a loan payment, then taking a 60-70 thousand dollar hit on a defaulted loan.  In all likelihood, if you default on your mortgage, you are filing for bankruptcy and good luck on the banks getting that
money.  This plan allows a few things to happen.  It can allow people to build equity in their homes by allowing people to make larger payments to their mortgage.  Imagine if you had a loan that was 1200 a month, but you were comfortable paying 1500 a month cause you had been.  You could make a huge dent in your mortgage over three years.  Paying it down nearly 10,000 dollars.  Also, this plan allows for the market to adjust.  In 3-5 years, homes should have rebounded to their values when they were purchased, allowing people to then sell their homes for what they are worth and being able to move up should they want to.  Also, the extra money this would allow people to have more money to put into the economy.  Thus helping the overall picture we have here of a sagging economy. People would have money to put into their homes now, and that would help the construction industry in the secondary market. Builders could expand their market from just building
homes, to upgrading existing homes. Jobs people!  Now smart people, like myself would use that extra money every month to pay off debt, which again would help the situation as well by improving the credit market, but to each his own.

Of course there are lots of draw backs to a plan like this.  No one would want to be locked into a house for 3-5 years.  But for the right people, it could be a life saver.  If you had a chance to lower your mortgage payments by upwards of $300-500 a month and the only real stipulation is that you had to live in the house for 3 years, shoot sign me up right now.  And banks are not going to want to loose out on their huge interest profits.  But considering that the average consumer stays in their home for 7 years these days, they are never going to see all of the money anyway.  I think the fact that more people would be making their payments, would easily offset some of the lost profits that banks might see. 

And to further the cause, we need real reform in the mortgage and real estate market.  As an Insurance agent, we are held to such high standards and have to file rates with the government.  I’m not about the government being involved in everything either.  But I am for state or federal licensing of mortgage brokers, realtors, and appraisers.  Along those lines, they should have to carry a type of malpractice insurance as well.  Insurance agents, Doctors, and Lawyers all carry insurance of this sort to protect consumers if they should give bad advice.  As far as I know, these other industries do not have that.  They should also have to mandate to continuing education with ETHICS like the insurance industry has to every year.  The number one reason people don’t like lawyers, car salesman, insurance agents and some doctors is because they think they can’t trust them!  The real estate industry is going to be so hurt by this.  I know that I won’t ever
look at anyone in the industry when I have to deal with them for my next home purchase again without being a little skeptical of what is motivating them.  It just makes your business that much harder when you have to fight through the natural prejudice that people have towards your industry. 

And that’s all I have to say about that.