SLOW to FAST

December 27th, 2007 • Chief Hypocrite

How can Lenders go from SLOW (Silly Lenders Ousting Workers) to FAST (Finally A Sensible Thought)?

Lenders have in recent years helped a lot of people move into houses who can not afford them. They have also helped a lot of speculators buy properties hoping to flip them for a profit after renting them for a while. This unusual fog a mirror finance driven demand drove up prices of homes and slowed down rental rates.

Now they are kicking the occupants out of the houses and leaving them empty until months or years later when they finally match a buyer and a price, historically selling them at an average $50,000 loss per house. Current losses in the oven are likely to be higher on average since current prices and loan amounts on average have been much higher.

Here is how lenders can go from SLOW to FAST.

Why not keep the current occupants in the house in a strategy designed to avoid the still current and historical solutions that almost always deliver the lose, lose, lose, lose solution to the Occupant, the Lender, the Neighbors, the Economy.

Go for the four bagger, win, win, win, win solution history might call a home run.

  1. Win for the occupant who avoids the trauma of the move in all of its aspects.
  2. Win for the Lender who exchanges large losses now for smaller losses spread over 5 years.
  3. Win for Neighbors who avoid suffering devaluation from fire sales.
  4. Win for Economy with a smaller systemic shock.

How? Do what business do all the time. Redo the Deal.

Not the mortgage.

Convert the Occupants, owners or renters, to stakeholders called Homesteaders in the house in a joint venture with the Lender, enabled pursuant to the groundbreaking 2008 Homsteaders Act to Mitigate the Melt Down which makes all of the following possible.

  1. Homesteaders convert to a 5 year Leasehold Occupancy based on a Negotiated monthly rent that they can afford as it may change from time to time. Negotiations are between the Occupant Homsteader and the Servicer. It will be the higher of any Negotiated Rent or 30% of their gross income.
  2. Homesteaders are credited 15% of these monthly rent payments to Dedicated Savings. That amount can only be used as a down payment (not closing costs) for a loan to buy the house within 5 years.
  3. Homesteaders have a First Right Option to buy the house within 5 years at the lenders accumulated costs at deal time. They also can Negotiate a lower price with the lender at any time.
  4. Homesteaders could exercise their Option anytime they want (a) if they qualified for a loan from that lender or it’s designee with close to market underwriting (b) at the lower of the Option price or the Negotiated price the lender accepts.
  5. At the end of 5 years, the deal is over.

SOME of the Needed Legal and Regulatory Relief:
(a) Special Regulatory Accounting Practices need to be authorized on a house by house basis for these segregated assets only, which are fully disclosed as special assets on its books not accounted for according to GAAP or whatever rules today for those Lenders who choose to participate. The Servicers buy the loan from the pool (at a fixed 15% discount) that owns them on behalf of a new, smaller pool owned in the same proportion as the original pool.

(b) Special legal exceptions will also be needed to make purchase from the pool possible and efficient, thus the fixed 15% discount. A new Trust for the Trust will represent current and new pool owners.

(c) The Trust for the Trust must be able to make a one time only yes or no election to the deal fon a pool by pool basis within one month of it’s passage. They must be able to say YES or NO on a pool by pool basis.

Important elements to emphasis about this emergency legislation with built in sunsets:

  1. All choose to participate, the Occupant (not the owner borrower speculator), the Lender or it’s Trust for the Trust, (the pools that will continue to own slices of the loans, taking a loss in the first pool and at a lower basis in the second pool), and it’s Servicer Agent.
  2. The deal ends on a house by house basis and under any circumstance it’s special legal and accounting provisions ends for everybody when the singing starts December 31, 2013.
  3. Deal must Convert before Dec 31, 2008, on any house subject to a between since Jan 1, 2004 and November 1, 2008 only where the unpaid loan balance is equal to or higher than the current value.
  4. The Homesteader and the Lender are on their own and the 2008 Homesteader Act terminates for each property after 5 years. A wiser free market hopefully will already be prospering in the balance of the real estate market rather than trying to dig it self out from an uncontrolled melt down.
  5. The Homesteader has had 5 years to figure out what their best housing choices on their own.
  6. The Lender then owns the property at it’s then depreciated book value and can dispose of the house on it’s own.

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There Is 1 Response So Far. »

  1. Comment by Sam Ervin Jret. on 1 February 2008:

    Wow, it sounds logical. In my left ear. Maybe too logical. All I can hear from my RIGHT ear however is Blah, blah, free market, blah more bureaucrats. But there is an precedent fro extension of the homesteader act. It was used in 2001 in some form for toxic waste land and land that was left in “ill repair.”

    Homes in “ill repair” may be a common thing if a common sense answer is not tried.

    I fear the “stimulus package” based on the “tinkle on theory” may not work….”what? what did you say? Oh I’m so sorry THE TRICKEL DOWN THEORY”

    If I didn’t have my editor, I don’t know what kind of typos I might make.

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