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NAREB: Government Solutions to the Housing Crisis Often Are Shortsighted

Sep 26, 2011

Posted by

Frank Cook

Frank Cook is publisher of ALQ/Real Estate Intelligence Report a residential real estate newsletter focusing on the cutting edge of the industry and author of "21 Things I Wish My Broker Had Told Me Read more

The National Association of Real Estate Brokers (NAREB) has developed a multi-step initiative that it believes can boost the nation out of the housing doldrums and put it back on the road to economic health.

The plan was developed by outgoing NAREB President Vincent Wimbish of Wimbish Appraisal in Mansfield, Texas, and was introduced at NAREB’s annual convention held this year in New Orleans.

The basics of the NAREB plan are:

•  Stop the rising tide of foreclosures by recasting the value of vacant properties to just their real estate value, thus making them far more affordable.

•  Create payroll deduction plans by which employers will automatically make employee mortgage payments directly to lenders.

•  Encourage financial literacy education programs where homeowners of all ages and races can learn the skills of money management and budgeting.

“What America has to do is change the homeownership landscape,” Wimbush says.  “We have to recognize that the current mortgage model doesn’t work in today’s environment.

“What we have put forth -- based on a profile of our communities -- is a mortgage product that isn’t just focused on African-Americans, but on all Americans who have been injured in this financial crisis.”

Credit Scores

A key element of the NAREB plan is to push banks and other lenders away from credit scores as the primary determinant of whether to grant a mortgage.  Credit scores were never intended to apply to mortgages,” says Wimbish, a 36-year appraiser who also holds a real estate broker’s license in the Dallas-Fort Worth area.  “Credit scores were developed for retail sales—to qualify borrowers for short-term purchases like appliances or furniture or vacations.”

Wimbish says lenders need to remember that all Americans pay for housing, one way or another.  “Housing is a basic,” he says.  “Whether you own a home or you rent one, you are paying something for shelter.  Our data indicates that if you can put something in front of someone that they can afford—either rental or a home—they’ll take it.  Housing is a necessity.”

Some General Support

NAREB has met with leaders from Fannie Mae and Freddie Mac, the Federal Housing Finance Agency and HUD to review its mortgage product.  Wimbish said the housing groups generally supported the idea, but he believes the government does not now have the political will to push it forward.

“NAREB has stated that government solutions to the housing crisis often are shortsighted.  Effective (government) solutions cannot be formulated without considering the impact of blight and blight eradication policies on minority communities, the exclusionary policies that color disaster recovery assistance, the decreasing number of families in the black middle class, and the increase in the percentage of black families with no wealth,” the  group has said.

NAREB thinks its proposal is better than many of the alternatives being considered by housing leaders.  “We’ve been talking to FHA, but they’re so busy getting their feet beneath them they can’t see the light at the end of the tunnel.  There are agencies that are thinking of pushing down houses and whole neighborhoods.  What we have to remember is that people lived in all these homes before they went into foreclosure.  We have to get people back into these homes.  The first step of the plan would be for lenders to reduce the value of foreclosed properties to just their real estate value -- which typically is in the area of just 70 percent of the outstanding principle.

“Most of the loans in foreclosure today are real estate, and a lot of other junk,” he said.  “These are homes that have been refinanced and refinanced again so that people could buy cars, and pay off credit cards and buy boats.  It’s estimated that only 70 percent of the outstanding balances is for real estate.  Banks need to reset the value of vacant homes down to just the values of property.  That’s the first step to making homes affordable.”

(To absorb the losses for the other 30 percent of the outstanding balances, Wimbish believes the government and lenders should develop a loan credit system.)  After resetting home values, lenders need to allow employers to make payments on employee mortgages.

Employer Involvement

“We have a generation of young people who do not know how to manage their money or budget for the future,” Wimbish says.  “So, especially for first-time homebuyers, we need to take that responsibility out of their hands.  The technology already exists for employers to make direct payments to lenders -- and some lenders already are allowing their premium (wealthiest) customers to do that.  We think it’s time to make that process available to everyone.”

Wimbish notes that, once you have a process in place where the bank is assured of having its loan repaid, lenders will no longer be so dependent on credit scores to grant mortgages.

“The loans absolutely should be subject to full documentation and employer verification,” he says.  “But essentially the employer is guaranteeing the loan.  The lender won’t have to worry about the borrower using the money for other purposes.  An added benefit of paying a mortgage through direct deposit by an employer is that the loan could be paid off more quickly.

“Many employers,” he notes, “distribute paychecks every two weeks.  Banks that receive mortgage payments twice a month rather than once a month would see outstanding balances diminish much more quickly.”

Next Generation

Finally, Wimbish says, there is a need to bring America’s next generation of homebuyers up to speed on the necessity of budgeting and managing their own money.  Using an employer-direct payment plan is a step in that direction, Wimbish believes.  Once people are in the habit of doing it, we believe that behavior -- that habit -- will continue into the future.  People will begin to see the advantages of building for their retirements and having savings.  They are going to see that building equity in their homes is good for their future,” he concluded.