Happy Homeowners Act of 2008

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I’m thinking of getting into politics. I’ve been watching testimonies, from both sides of the aisle, about the credit crunch and impending doom of mass foreclosures. I figured out the problem:

The housing prices were too damned high.

Now, my stance, to this point, has been pretty clear; let the market act as markets do, with commensurate consequences to each and every market participant. Lenders and borrowers lose. Lenders lose money, and borrowers lose the freedom to buy another home, with the use of a mortgage, for a period of 4-6 years. (remember that statement)

As I’ve said, I’m thinking of getting into politics so that straight talk and libertarian approach is somewhat unacceptable in the vote-seeking game. I think I need to find a solution that will put me in a picture, alongside Hillary, Arlen, Barney, and Hank. My solution may also fire a shot across the bow of our economic enemy, China; that’s just a bonus for the cold warriors among us.

The Happy Homeowners Act of 2008 understands that foreclosures are far reaching in their devastating effect. They leave homes vacant in neighborhoods, they attack the esteem and morale of the borrowing family, and what is often left unsaid, they whack the investors’ principal. Talking heads have said that the homeowners just want to live in peace and harmony, in their slice of the American Pie. So… here’s my proposal:

Mark to the Market or yell “do over”. We’re all in this together, right?

1- Homeowners overpaid for their homes. Those homes are worth some 20% less than what they paid for them. The investors will take a loss of 20% (or more) should they proceed with foreclosure…so…just take the loss today. Reset the loans to a loan amount the borrower really can afford.

2- Investors will lose money but can recoup some of those costs from the market participants that profited. Real estate brokerages, mortgage brokerages, originating lenders, servicers, Wall Street securitizers, appraisers, home inspectors, stagers, and everyone who made a dime off the transactions during the “excessive period” can contribute, oh…let’s say…half of their fees earned in the exploiting transactions. This “loss reserve” fund will help defray some of the investors’ losses and real estate workers will think twice about “blessing” future transactions.

3- Homeowners affected just want to stay in their home, right?. Employ the old USDA Home loan program principle, that gives a financial incentive, for the homeowner to do just that- homeowners won’t be allowed to sell or refinance their new “fair loan” for a period of 5 years. If they do, the forgiven debt will be applied to the payoff demand (yep, that’s a 20% pre-payment penalty). No subordinate financing will be allowed so the homeowner can’t use his home like an ATM for five years.

4- If the mortgage was owned by a less than friendly trading partner, like China, just whack ’em with the loss. Shame on them for playing with fire. If you invest in an economy with whom you won’t play fair, you get whacked.

5- If the foreclosing mortgage is owned by an investor, make the investor move into the property that is being foreclosed for a period of five years. He can sell his mansion and live with the “poor people” he tried to exploit. This humbling experience will teach the investor that you can’t game the banking system to profit off the backs of the proletariat.

Remember, we’re all in this together, right? This problem is an epidemic of far reaching proportions. We need to act quickly to restore confidence.

This is, of course, a stupid idea of colossal proportion. It’s socialist to the core. I’ve said that failure is a costly but cogent instructor. Failure has a five year effect on foreclosed borrowers as does the Happy Homeowners Act of 2008. Failure, however, makes America grow up while government intervention perpetuates the Peter Pan syndrome permeating the housing industry, from Wall Street to Main Street.

I’d rather be broke, homeless, and free rather than a slave to the system…but that belief… won’t get me any votes.

A chicken in every pot, a pot in every kitchen, a kitchen in every home, a home for every American…regardless of the cost…

Brady in 2008.