PERSON OF THE WEEK: To borrow a line from Thomas Paine, ‘These are the times that try men's souls.’ A fragile economy and a housing market that remains in a state of tumult have confused and upset many people. This week, MortgageOrb speaks with Chris Sorensen, founder of the Los Angeles-based Homeownership Education Learning Program, on what can be done to alleviate consumer apprehension in the face of the ongoing financial crisis.
Q: At this late stage of the financial crisis, is there still a great need for homeowners to receive financial education?
Sorensen: A lack of education, along with greed on numerous fronts, is what brought the lending industry to its knees and it still plagues us today. The consumers and the professionals that serve them remain ignorant on the most basic aspects of homeownership financing.
We have borrowers who are losing homes they purchased in the last few years due to impound accounts not being set up properly. This should not happen. We have first-time home-buyer programs that are actually being underutilized due to a lack of understanding of the benefits by buyers and professionals.
And God forbid a borrower makes the mistake of paying their property taxes a few days late on a non-impounded loan and then tries to unravel this mess when he and she discovers the servicer sent a mass wire to the local taxing authority. I've had several borrowers tell me a similar story.
The Department of Housing and Urban Development, the Department of Veterans Affairs (VA) and the mortgage insurance companies should consider the amount of money lost over the last five years and wonder out loud how many millions could have been saved by requiring basic education for the borrower and the loan officer who sells the loan.Â
Q: Many people are spooked about what is happening to the economy and are not considering home buying at this time. What can be done to reassure people that there is a future in homeownership?
Sorensen: They should stop trying to be cheerleaders and focus on historical data. It drives me absolutely nuts when I hear some professionals discussing how today's challenges are media-related – as if the public is harmed by the reporting of factual data. This ‘ignorance is bliss’ attitude permeates the real estate industry.
The public may not know why what the agent is telling them is wrong, but inherently, they know something is amiss. By educating today's buyers on the readily available historical data, one can demonstrate that the ‘wait to buy until the market hits bottom’ is a folly.
Q: Many people are also concerned about purchasing foreclosed property, due to news coverage of servicing problems relating to these properties. How can you reassure people that there is nothing to fear with this type of purchase?
Sorensen: The fee title to people's homes is the cornerstone of the American homeownership dream. It is often said that perception is reality. If the perception with a buyer is that he or she might have issues post-closing, then extra time going over what a title company actually does is a great way to handle this concern.Â
If an individual has purchased a plane ticket on an overbooked flight, the airlines have certain rules and protocol they must follow to compensate said passenger. The same applies to home buyers. Title insurance sort of acts the same way to protect a buyer.
Q: In your opinion, what will it take to get the housing market back on its feet?
Sorensen: There are six steps that need to be taken. First, borrowers need to be offered modifications that allow a borrower to enjoy the benefits of a principal reduction by giving up future equity. Second, a rent-to-own program should be offered to those who have a one-time documentable hardship, but also have a stable income.
Third, we need to drop the 20% down-payment requirement of the Qualified Residential Mortgage. The lack of down payment is not the issue, and the impression this talk creates amongst virtually everyone is that ‘the government believes prices are going to drop, so why shouldn't I?’Â If down payment is the issue, why has the Federal Housing Administration and VA historically performed so well?
Fourth, we need to move faster – the lack of speed is what is hurting all of us. I recognize this must be a controlled burn as we deleverage, but this is taking entirely too long. It is creating uncertainty, and that is the number-one problem we all face.
Fifth, something needs to be done to demonstrate to the American people that someone is in charge. People need a leader – and right now, some would argue they have none.Â
Finally, we need to put people back to work. Everyone knows this will have the biggest impact on housing. Legislation that would offer massive tax breaks to employers who hire people over the next 36 months would help, and the temporary loss in tax revenue would more than be made up by getting our country's engine primed. The cost of hiring is prohibitive for many. Small business needs a spark, and this could be it.
