Renaissance 21 Plan
We can work our way out of the sub-prime mess provided we use a little common sense mixed together with some uncommon thinking.
First, let’s establish some basic rules
Establish new standards and guidelines for re-appraising home values along with certification programs to support these new standards.
apitalize on the availability of real estate professionals in every community throughout this nation while working with the government to make certain their enormous pool of emergency funds is invested where it’s needed most, in grass roots areas where the bulk of the credit problems exist.
One of the key issues that’s been targeted as a cause of the mortgage crisis is the use of the Mark-to-Market method for establishing home values. This method computes property value based on comparables; that is, the value of similar properties in the same market area.
The problem is, Mark-to-Market relies on the lowest, most depressed values in the market. Many property owners, after having their property devalued, ended up with an upside down mortgage which means their property was worth less, much less in many cases, than the value of the mortgage, or debt, they currently owe on the property.
In order to move forward, we must abandon the Mark-to-Market method. Next, let’s take a page out of the IRS’s playbook that permits taxpayers who have enjoyed a sudden increase in income to compute their current year tax liability by “averaging” their income over the prior three-year period. Who wants to pay higher taxes if they can avoid it?
Similarly, who wants to keep paying for a home whose current value is substantially less than it was when they financed it?
I don’t mind if you call this method “Reverse Averaging” since the IRS method minimizes a liability while this method maximizes an asset.
We need leaders of all major National Associations representing RE appraisers, brokers and lenders, as well as officials working in the new office of economic recovery, to gather at a summit meeting NOW and establish emergency standards and guidelines to govern the appraising and financing of all real estate properties trapped in this crisis.
This program, which is aimed at economic renewal at this early moment in the 21st century, needs an appropriate name, and my suggestion is Renaissance21.
I recommend further that only homes used as primary residences qualify; second homes and real estate investment properties should be specifically excluded from Renaissance21 benefits.
CRA, or the Community Reinvestment Act, should be repealed and traditional lending standards that banked on the character, capacity and collateral of the borrower restored and applied to all beneficiaries of the Renaissance21 program.
All distressed properties will be reappraised and new, fair market values established.
What follows will vary.
Some of the affected properties will be refinanced. Some sold.
Others will be acquired by the Renaissance21 project, renovated then resold or leased.
The most effective and efficient way to solve this national crisis is at the local level and in the process, it would restore property values, restore peoples financial status, restore public confidence, and ultimately reignite the American Dream.