'Streamline refinancing' would help local housing market

In 2007, after years of unsustainable growth, the U.S. housing market began to collapse. A wave of foreclosures accelerated the decline and a brief flirtation with the American dream ended for many hard-working families.

The new year will, I hope, bring a new resolve to solve this crisis and provide relief for thousands of Nevada homeowners. Our current mortgage system, like our federal income tax system, seems designed to reward failure and punish success, and indeed the entire loan modification process is backward.

First, buyers must be in default to qualify, which means no relief is available unless the homeowner stops making payments and destroys his credit. Second, while banks reduce the initial mortgage payments, they typically add this amount and more to the back end of the loan, ultimately increasing the cost for the homeowner. Third, as with most government programs, there are people who abuse the process for personal gain -- there simply isn't sufficient fraud prevention in place.

Nevada's housing crisis is far from being solved. Indeed, it's getting worse. In the first half of 2010, one out of every 17 homeowners in Nevada filed for foreclosure. Values of homes have plummeted and in some areas more than 70 percent of homeowners are upside-down, meaning they owe more than their homes are worth.

There is a solution to our housing crisis, but it isn't more government programs. The answer is in the adoption of streamline refinancing with Fannie Mae and Freddie Mac loans -- as is currently available with VA and FHA loans. Streamline refinancing allows homeowners to refinance their mortgages at the current lower interest rate without an appraisal. The only requirements are that the homeowner must be current on their mortgage and be able to show a source of income to pay the mortgage.

Congress attempted to pass a remedy but did not go far enough. The bill they passed allowed homeowners with 125 percent loan-to-value to be refinanced. Why the 125 percent cap? If we remove it, all homeowners current on their mortgage can take advantage of the incredibly low rates, currently around 4.25 percent. A homeowner with a $250,000 30-year mortgage at 7.5 percent interest pays $1,748 per month. If that same homeowner refinances at the current rate, his monthly payment drops to $1,230 per month. This savings could be the difference for thousands of people struggling to stay in their homes. For tens of thousands of others it would provide $518 per month in discretionary money -- a real stimulus to our economy. Finally, we the people would benefit from the low interest rates, not just the banks.

Without creating any more government agencies or spending any more taxpayer money, streamline refinancing will save the housing market, provide a real stimulus for our economy, and create an abundance of job opportunities -- not to mention significantly increasing the demand for office space in Nevada, which is currently at all-time lows. And it will do so, without requiring banks to reduce the principle owed on the loans and thus a loss on their assets.

Our government is standing in the way or refusing to enact common-sense reform that could make the difference for millions of Americans, including many who call Nevada home.

It's time we the people demanded practical, market-oriented solutions, and what better place to start than with helping our neighbors keep their homes?

Danny Tarkanian is president and founder of the Tarkanian Basketball Academy and a former U.S. Senate candidate.

Trending topics:

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• Fannie Mae
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Comments

Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background.

1. Malousnormal Jan. 25, 2011 | 3:33 p.m. Report Abuse

   Sadly, the real problem is that people have insufficient income to live in the houses they bought...often theri life pattern is to live in debt up to and then beyond their income level....the harsh lesson is that Americans have gotten into the habit of living beyond their means and buying things that their parents would NEVER have bought using the most deadly of all weapons in the despot's arsenal....credit/debt based living..

2. james.murphy Jan. 24, 2011 | 1:21 p.m. Report Abuse

   This is a great idea. Like, “hey. . I pay my mortgage payment, but its just above the going rate and it sure would be nice to put some more money in my pocket each month if I had better loan terms” Lets think about this. Even wonder why the refinancing has totally dried up as the home values have plummeted? Why is it that FHA and VA loans are able to be refinanced without an appraisal of the home i.e. if your home is underwater and you have a current VA loan, you can go and get refinanced without having to show value. . .its because the lender is guaranteed in the event of borrower's default and that the amount will be repaid. This is not the case with the vast majority of loans (at least mine). Hence, what Mr. Tarkanian is proposing is only going to be accomplished with some sort of legislation that would allow for further guarantees to lien holders to incentivize the lender to refinance your upside down loan. This idea calls for under collateralized loans. . .so we have to have a guarantee component. Tarkanian is calling for a new government program that would naturally be used to prop up banks when these largely unsecured “streamlined” re-fi loans go into default. It is not that the banks just want to be sticklers . . .you can’t get refinanced because the loans don’t make sense from a business standpoint. Until there is a fall back guarantee program in the event of a default, or some other type of insurance that is available to the re-fi lender, this is never going to happen. I love the line in the article about "without creating anymore government agencies or spending any more tax payer money." Really? I'm all ears.

3. Tony.Wright Jan. 24, 2011 | 6:41 a.m. Report Abuse

   It's as if they pledged the real estate to china as collateral for the loans they have been getting. The pretend help is not to help at all but rather to make the people who bought too much house and now can't pay for it get out without having to foreclose on them. They then can blame anyone but themselves for the failure. And IN a large part they are right. But they bit on the bait like a hungry fish and got caught.
   
   The fed and the progressives pledged trillions for home loans to promote "the American Dream". Coupled with the community reinvestment act, this forced lending standards so low that if you had a pulse and could sign your name, you could own a home. Paying for it was another matter.
   
   This was pushed by the threat of bank audits by the US government if they did not do that. This forced prices on all homes up to stratospheric levels and the buying was frenzied. In 2006-7 the rates on many homes adjusted on schedule and the failures started, banks took hits on the balance sheets, Change the accounting rule to mark to market and the mess becomes even bigger. Financial s led the market down and the feds pushed really hard to push it further down. People made fortunes in selling short everything they could. Goldmans sachs sold CDOs and there were some $72trillion of them floating around, most owned by foreign banks. When they failed they had to be made whole or the US would have lost it’s AAA credit rating. That gave us tarp, AIG was a patsy in all of this and they knew it.
   
   The end result is that the economy took a giant hit, the government was a big player in all this and was the main driver, in both directions. To think the government can get us out of it is ludicrous and Obama has no desire or ability to help.

4. Americancitizen Jan. 23, 2011 | 9:12 a.m. Report Abuse

   Danny, you are so RIGHT ON! Too bad Scary Reid doesn't get it.

5. Yo-yo Jan. 23, 2011 | 9:05 a.m. Report Abuse

   Hermit, you may have been a hermit for too long. The 7.5% was not a high rate several years ago. You also failed to think of these great ARM loans the banks were pushing out. When the arms adjusted, 7.5 was not uncommon.

6. Reality Bites Jan. 23, 2011 | 7:36 a.m. Report Abuse

   www.youtube.com/watch?v=HmodOyhAV68
   This is why the banks won't refinance.

7. hermit Jan. 23, 2011 | 6:40 a.m. Report Abuse

   Would not anyone paying 7.5% be a high risk to start with?