ReMax co-founder Dave Liniger recently issued an open letter to President Obama and Governor Romney detailing how the next administration might best help our nation’s still-struggling real estate market.
By the time you read this, the election will be over. But the suggestions are valuable regardless of who won what must be the toughest job in the world.
Titled “Let Housing Lead The Recovery,” the letter opens with a gentle chide to both candidates for virtually ignoring the housing market during the campaign and the recent debates. He then reminds us that, in the past, the housing industry has always led our nation out of the days of recession.
That has not happened this time, and he presents four ideas to help housing make a more significant contribution to our anemic recovery. Here they are:
1. In a cruel twist of logic, the IRS considers any relief from debt to be income, and taxed accordingly. Thus, if you obtain a loan modification or sell your home in a short sale, your tax bill could be enormous.
In 2007, The IRS Mortgage Forgiveness Debt Relief Act allowed qualified borrowers to seek debt relief without having the forgiven portion of their debt taxed as income.
Unfortunately, that exception is set to expire at the end of this year, which will likely have a chilling effect on short sales and loan modifications, just when we need them most. Liniger suggests that the current law be extended for at least two years to encourage a quicker resolution for millions of Americans who find themselves “underwater” in their home loan.
2. Loose lending made a major contribution to the housing bubble by placing less-than-qualified borrowers in homes they would eventually not be able to afford. As a response, the nation’s largest secondary lenders, Fannie Mae and Freddie Mac, have tightened their approval guidelines significantly.
In fact, according to Liniger, the average FICO score of denied loan applicants last year was 734 and their average cash down payment was about 19 percent. This over-reaction to yesterday’s excesses is strangling what little recovery we have with unreasonable lending standards.
All agree that only qualified borrowers should be approved for home loans, but historically unreasonable loan standards make it extremely difficult for sellers to sell and buyers to buy residential real estate. A return to common-sense lending is the right path to recovery.
3. The controversial Dodd-Frank Consumer Protection Act apparently has many unintended consequences in our economy. One provision allows secondary market makers such as Fannie Mae and Freddie Mac to “charge back” to the originating lender any loans that fail to pay as agreed unless they are “qualified.”
Here’s the catch: There is no definition for “qualified”, so any loan can theoretically be returned to a lender if it goes bad.
This places local underwriters in the awkward situation of having to deny all but the strongest loan applicants for fear of having the loan “charged back” to the originating institution. Clearly, the real estate-related provisions of Dodd-Frank need to be revisited, and quickly.
4. Finally, lawmakers on both sides of the aisle have been kicking around the idea of eliminating the mortgage interest deduction. Absent that, many have called for means-testing or severe restriction. Liniger believes (and I agree) that such a move would only make it harder for families and individuals to achieve the American dream of home ownership. Certainly now is not the right time to change the rules in a way that will make ownership even less attractive.
As you might imagine, I fully concur with Mr. Liniger’s suggestions, and if you do as well, I encourage you to send them to your elected representatives along with your own ideas for steps to encourage a much-needed recovery in our nation’s housing market.
Senator Johnny Isakson, in an exclusive interview, recently said, “In the long haul, real estate is still the best investment you’ll ever make.” For the sake of America’s homeowners, I hope he is proven right, sooner rather than later.
