Fixing the Mortgage Market Over

Fixing the Mortgage Market

Over the last decade the U.S. housing market has been on a tremendous rollercoaster ride. Where, prices were at all time highs and lending standards were easy. Then, the inventible collapse came; that was accompanied by a financial crisis that was not seen since the Great Depression. An example as to how extreme the current economic situation became is with the total number of foreclosures in 2009. Where, Realty Track found that foreclosures hit an all time high during that year, coming in at 2.8 million. This is a 120% increase in the total amount of foreclosures since 2007. With Realty Track CEO James Saccacio saying, "A massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010." ("Record Number of Foreclosures in 2009") This is significant because it underscores the overall scope of the problem that various federal and state bailout programs are facing. As the overall supply and fear among lenders is mitigating any kind of homeowner relief programs. To rectify this situation requires altering the approach that is being used. Two ways that this can be accomplished is through increased amounts of homeowner education and higher standards of ethics / professionalism within the real estate industry. Together, these two elements will provide the greatest insights as to how you can improve the various federal and state homeowner assistance programs.

Educating Homebuyers

One of the biggest issues that many homebuyers faced during the housing boom was a variety of different mortgages to choose from. In many cases, the traditional lending standards were often ignored if someone did not qualify for a mortgage because of: bad credit, job history and other factors. What would happen is a variety of loan officers and loan brokers would direct these investors to new type of mortgage that would help them to purchase the home they wanted, a subprime mortgage. This would often involve easier lending standards and in many cases there was no verification of the actual income or job history. To make matters worse, many homebuyers were tricked into believing that their mortgage was similar to a fixed rate mortgage. When interest rates started to increase, many homeowners could no longer afford their mortgage as they were consistently reset higher. ("Financial Reform") to fix this problem over the long-term; requires having homeowners attend some type of financial education classes, prior to closing on their home. Where, the government could offer all homeowners rebates and tax breaks for going to these different classes. This could help to educate homeowners about the dangers associated with the different mortgage related products. In addition, it could be used to help the potential buyer to understand how the different mortgages work. At which point, those home owners who takes the class, can be able to compare the different mortgages with their personal financial situation and determine which one would work well for them. Over the long-term, this would help improve buyer education and will ensure that majority of loans that buyers are obtaining, are within their financial means. (Finney, 2010)

Higher Standards of Ethics / Professionalism with the Real Estate Industry

A second way to improve the overall effectiveness of federal and state home owner relief programs is: to increase the various ethical and professional standards within the real estate industry. This is one of the biggest causes that contributed to the financial crisis. Where, the lack of ethical standards within the industry, helped to cause a number of executives from: loan officers to real estate appraisers, to engage in predatory and illegal lending tactics. Where, many would falsify the income, credit histories or out right lie to borrows about the mortgages they were receiving, along with the terms. This perpetuated the crisis as millions of bad loans were given to borrowers who did not qualify or could not afford the mortgage, if there was a change in interest rates or the economic landscape. ("Financial Reform") to prevent this situation in the future, the regulation of the entire real estate industry should fall under the jurisdiction of the federal government. Where, the SEC or the Federal Reserve could oversea the proper training standards in the industry. Under this kind of system, they could establish a national licensing and continuing education standards for all of the different real estate professionals. You could then create a national database that will monitor the different professionals for ethical conduct, which can be given out to home owners. What would happen is, if a real estate professional was found to have engaged in unethical standards in the past, this information would be reported to the central database. During the different home owner education classes this information can be given to borrowers, so that they can ensure that they are working with someone who is of high ethical / professional standards. Over the course of time, this would create higher standards within the industry, as those professionals who exhibit the highest standards would be sought out by borrowers. While, those who engage in such unethical actions will be washed out of the real estate industry, as informed borrowers refuse to do business with them. (Phillips, 2008)