The proposed Real Estate Stabilization Act of 2011 (RESA 2011) is a tri-party collaborative proposal mandating cooperation from lenders, government and homeowners that will stabilize the real estate markets, enabling a full economic recovery. This presentation represents the short form plan.
Legislation to require the holder of any note or portion thereof, said holder having received funds through EESA, TARP or any other relief/economic stabilization program, secured by 1-4 unit residential housing; the beneficial interest thereof obtained in any manner including, but not limited to origination, purchase in the secondary markets or acquisition of another institution, shall be required to offer loan modification.
Statement of Facts
Since the onset of the economic crisis, in California alone there have been over 3.5 million REO re-sales and Short Sales, with the resulting loss in real estate taxes exceeding $9 Billion (the projected deficit being $9.25 Billion). In addition there are another 2.5-3 million homes with negative equity; plus some 400,000 bank owned vacant properties that have yet to impact the real estate tax base. As the crisis that the states find themselves is caused by a banking crisis, and thus under federal regulation, they have no direct control over their financial destiny. The only options available, cost cutting, mostly through lay-offs and curtailing of services are by their very nature counter productive, actually worsening the downturn. Using the current FHA/HUD actuarial of 4% appreciation for the next 20 years, left unchecked, the real estate crisis will prevent an overall recovery until, at the earliest, 2022.
1. Existing mortgage to be written down to the current fair market value of the property
2. New mortgage loan to be written 5 year reset with a 50 year amortization.
3. Initial interest rate to be the lesser of 4% or 1 % over the
current yield of the 10 year treasury note, with an adjustment margin of 2.5%.
4. Rate cap each 5 year period shall be 2%+/-, with a 5% lifetime cap.
5. The note shall be assumable and carry no pre-payment penalty.
6. No traditional debt-to-ratio qualifying.
7. In instances where the homeowner is currently unemployed, 1 year Principal-Interest to be calculated and added to the principal amount due. However, borrower to fund the tax a insurance escrow account.
1. Employing current loan-loss guaranty formulae, lender to be reimbursed for loan write down to 80% of the original principle, plus any accruals.
2. Lender to receive additional tax incentives to offset the write down.
3. Lender reimbursement to be treated as a loan to the homeowner; and repaid through the waiver of the mortgage interest deduction.
5. On a dollar for dollar basis, lenders to be relieved of loan loss requirements for all modified loans. Caveat being that loans must be made for the easing. "Lend it or Lose it".
1. Waive the mortgage interest write off on federal and state tax returns.
2. In the instance of an existing foreclosure, a forbearance agreement to included with the note, and
3. Waive any reduction in real estate taxes
4. Establish an escrow account for taxes and insurance with the lender at 0%.
5. Should the homeowner fail to fund the escrow account, the lender shall be relieved of the terms of
RESA; and free to proceed with alternative methods of relief including deed in lieu,
foreclosure or short sale.
6. Government contribution to be a personal indebtedness. May be retired through the sale of the
subject property and/or the mortgage interest waiver in #1 above
1.Stabilizes the housing markets, halting the current free fall in values.
2.Halts the dramatic erosion of the real estate tax base, thereby aiding in the financial recovery of the various states, and local governments.
3. Retains citizens in their homes.
4. Prevents the erosion of neighborhoods and communities.
5. Provides the confidence required for consumer spending needed to fuel the recovery.
6. Government contribution (stimulus) will result in greater overall confidence and consumer spending thereby fueling the recovery.