Mortgage Modification - Joe America revives the economy

Lets face it -Obama has more fancy programs like HAMP and HARP and TARP than the average American will ever understand. These are programs that are targeted in reality at voters and specific interest groups such as banks, wall st, etc...

The Obama programs may be fancy, but we know that just about everyone outside of the Obama administration is adamant that they are not working. I am almost adamant they are not working and it is because they are not targeted at Joe America. If you refer back to the previous post you will recall that currently about 21% of homeowners are underwater on their homes. Here is where my thesis is going to be open to debate but that is the nature of the beast as I have to make some assumptions. Lets assume that 15% of those underwater on their homes are still currently employed. You may ask what math I used to come up with this and the answer is none. This is more a common sense approach. I believe that those who are unemployed have for the most part already lost their home (and thus it is no longer part of the 21% of homes underwater) or they are in the process of being foreclosed on currently which will make up most of the difference between the 15% still employed and the 21% currently underwater on their homes. So now we need to recap where we are at:

• We are assuming that Joe America is the 15% of homeowners who are underwater currently on their home mortgage who are still employed and currently paying their mortgage.
• We know from the CNBC link on the previous post that there is close to $15 Trillion in Mortgage Debt outstanding and around $600 Billion in Home Equity Debt outstanding.

What we are trying to do now is provide both a Macro and Micro outlook on my these of how Joe America can be targeted with a specific modification program that would immediately revitalize the US housing market and economy.

Because he is still employed Joe America represents the best hope for turning around the housing market by creating an immediate floor in house prices which will in turn spur new construction, new lending, new spending by those no longer worried about their dissapearing net worth at home, and all of those factors combined will then lead to JOB CREATION.

From a Micro standpoint here is the solution:

Joe America has a first and second mortgage valued at $400,000 combined ($300K first and $100K second). His house is currently worth $300,000 and he is underwater by $100,000 today. He is employed and makes enough to pay his mortgage but times are tough and is getting fed up with his inability to work with his bank to find a way out of his house. He is mad because his is the first generation that will be penalized for a lifetime for buying a house and watching the home price drop 25% in 2 years. He is frustrated because he could by the same house he lives in today or maybe even a nicer one for $250,000 or something significatnly less than what he currently owes on his own underwater house. He is tired of reading about Obama program after Obama program meant to deal with the housing crisis but that dont apply to him because he still has his job and is still current on his mortgage.

Joe America is representative of the bulk of homeowners who are underwater on their mortgages in the US. Joe America needs a solution but not just a financial one. Joe America needs a solution that restores hope for his financial future which will in turn spur him to feel comfortable to spend money and revive the economy. Joe America lives in the greatest country in the world and with hope restored for his financial future will once again feel comfortable to travel, dine out, buy new clothes, and become the engine that revives the US economy.

In the next post I will explain how Joe America can partner with the US Government and his Mortgage holder so that all parties involved can make an investment today that will pay huge dividends tomorrow while at the same time ensuring the financial health of all parties involved.

Housing Crisis - Actual Solutions

This entire blog will be dedicated to creating a forum for those outside of the glass house in Washington DC to espouse practical ideas on how to confront and ultimately redefine the debate on the fiscal bankruptcy of the United States that continues on a daily basis.

Without question it is the policies of the last 20 years, across both Repulican and Democrat administrations and congresses, that has left us with the mess we have today. Just read this for a brief recap on the ill founded reasoning for pushing the current Government controlled Fannie/Freddie to lend money to anyone with a pulse. So bickering and finger point over how we got here is irrelevant. There will be time to learn the lessons from the past and apply them to the future. However that time will not come until we finally deal with the root cause still plaguing the housing market today which is different than what the talking heads would lead you to believe.

The single biggest issue facing housing today is the amount of current homeowners underwater on their existing mortgage - those who owe more debt on their house than their house is currently worth. Today the talking heads in the news are trumpeting the fact that the number of American homeowners underwater on their mortgages fell from the previous month to only about 21% of all homeowners in the US.
(http://news.yahoo.com/s/nm/20100809/us_nm/us_usa_economy_housing_2).

Now this needs to be put further into context and that context is that you need to understand the total amount of Mortgage debt outstanding in the US. According to CNBC, this amount to almost $15 Trillion in Mortgage debt and another $600 Billion in Home Equity debt. (http://www.cnbc.com/id/30438711/America_s_Biggest_Types_of_Personal_Debt?slide=10)

Where I differ with the talking heads is that they would lead you to believe that Jobs are the number one factor to fixing the housing crisis. They would have you believe that as long as people went back to work that eventually the supply/demand equation of housing would rebalance and that as more people move back into the market to to buy homes that home values would rise as a result of this. The thesis is correct that home prices will increase as more people are employed. Where they miss the boat is assuming that this alone will fix the housing crisis.

The housing crisis today is not improving because of the vast amounts of homeowners that are both underwater and STILL employed. Not to appear heartless but those who have lost their jobs today have no impact on the housing market. If we assume that the unemployment rate has stabilized (which is a big "If" I agree) then it is fair to assume in my opinion that those who have already lost their jobs are for the most part now immediately stopping paying their mortgages as the social stigma of defaulting on a mortgage has long since faded away by the middle of 2010. What is impacting the housing market the most is those that are still employed, still gainfully making mortgage payments, but 25% underwater in their current house with zero hope of seeing the value of their home return to its original price in the next 10 years. That homeowner, who we will from here on out refer to as Joe America, is the engine that could revive housing and the entire economy itself if our government and banks would get their heads out of their butts and come up with some Financial Ingenuity.

The next post will explain how the government, banks, and Joe America can all make a small sacrifice today that would immediately stop the bleeding in the economy and make the future look so much brighter on the housing front.