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Friday, February 15, 2013

A Radical Idea To Keep Homeowners In Their Homes

(cafemama/Flickr)

(cafemama/Flickr)

For a little over a year, entrepreneur Steven Gluckstern has been meeting with cities and towns to pitch his radical idea to deal with underwater homes, meaning homes that are valued far below what people owe on their mortgages.

Gluckstern says local governments should use their powers of eminent domain to seize the mortgage from bondholders, and then help homeowners get new mortgages at the current value of the home.

“We have some 10 million underwater families who don’t participate in our economy the way they should.”
– Steven Gluckstern

“We have some 10 million underwater families who don’t participate in our economy the way they should,” Gluckstern told Here & Now’s Robin Young. “This is something that needs to happen. The solution of throwing another four to eight million families out of their houses over the next four years seems to me… an absurd answer to how to solve this problem.”

If a homeowner has a $300,000 mortgage but the house is now worth $200,000, Gluckstern says the city could buy the mortgage for $160,000 from the bondholder, and then assist the homeowner with securing a mortgage worth $190,000 to pay back the loan and additional fees.

He’s arranged a pool of capital from investors to help cities finance the deals. The only problem is, so far no local governments have signed on to implement his plan.

Critics of Gluckstern’s plan say there would be a surge in mortgage rates, a tightened market for borrowers, and that the city would cherry pick the homeowners who are able to pay back the mortgages, leaving people most in danger of foreclosure in jeopardy.

Gluckstern argues that the people fighting for the status quo are the lenders who benefit from the homeowner paying the higher mortgage value, and those who benefit from the foreclosures that inevitably occur.

Most mortgages are traded as securities on the market for what they are worth now, Gluckstern argues, so the lenders that own the mortgages have already taken the loss.

“The financial institutions that brought us this disaster have been bailed out to the tune of hundreds and hundreds of billions of dollars, and the individual homeowners who were the target of what was predatory lending and… have not been bailed out in the slightest,” Gluckstern said. “I understand that a financial institution doesn’t want to be taking unnecessary  losses… but that loss has already been taken; we just haven’t relieved the homeowner.”

Gluckstern recently suffered a set back with San Bernardino County voted down the idea. The county had been his most promising potential partner. But Gluckstern is undeterred. He says he has other towns lined up and expects to get the idea off the ground in the coming months.

Guest:


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  • Call_Me_Missouri

    We should have been doing THIS instead of BAILING OUT THE BANKS.

    Our Government is supposed to be BY THE PEOPLE, FOR THE PEOPLE…  Not By the Banks and For the Banks.

    Give the People the Money directly to pay off the Principal difference between the Mortgaged and Real Value of their Home and do that for EVERYONE, not just poor people.

    Stop letting Banks screw up Credit Reports by helping the PEOPLE ONLY.  STOP HELPING BUSINESSES PERIOD.

  • http://www.ohioken.com Ken Palosi

    The main problem I have with this program is that it does absolutely nothing for the urban poor. The poor who were duped into a $60,000 mortgage on a house that may now be worth $10,000 get absolutley no relief from this.

  • Brianna hunter

    If the 300k mortgage is trading on the market for $160k why not bring the opportunity to the homeowner or cooperatives to buy out the notes … Instead of bringing more middlemen into the equation

  • Info

    I purchased a house to live in…not to gamble and make a profit.  It is the financial sector that chose to turn mortgages into an investment scheme. THEY gambled and THEY lost, but I took the hit. Wall street drove  prices over the top and watched as they crashed.  No question about it, they should be the ones to absorb the losses.  

  • AngryPancho

    This guy’s right, the financial institutions have already written these loans down. What’s really holding this up are the truly amoral financial institutions. This guy deserves more publicity and no I am not underwater.

  • Bdojr

    Just finished reading the 6-page article in Feb 4 issue in New Yorker about you “Home Economics”. I’m a real estate broker in Santa Cruz County, California and behind you Steven 100%. I’d love to contribute to your efforts … get it off the ground and running. This issue isn’t going away anytime soon!
    Best,
    Barbara O’Leary 

  • Kpallante

    In my neighborhood – a suburb of KC, MO – we have dropped so far that it may never come back. My home currently appraises for $30,000 less than what I paid for it 15 years ago. We have 500 homes in my suburb / town. 30 have been foreclosed; they have all sold subsequently for 70% to 95% less than their value in 2007. That has dragged down the value of all of our homes. We also have 40 homes listed for sale currently. 10 have been on the market for 4 years;  another 10 have been on the market for 3 years;  another 10 have been on the market for 2 years and the final ten have been on the market for over a year.
     
    When a home does sell, it sells for 1/10 of what they fetched as of 2007. BTW, not one foreclosure was due to a person buying a home they were not qualified for. The average length of time that they had lived in their homes was: 17.5 years. The average age of the couples foreclosed on was 58 years of age. These were not folks who barely qualified and put no money down. We put 20% down on our home (in 1997) and paid $149,000 for the home. Today? Today it appraises at $120,000. At least in the KC area, we are screwed.
     

  • guest

    If a similar program had been available two years ago, we would still be in our home.  Neither the bank nor any of the federal programs would help us, and we had to short-sell our home.  The people who bought it are paying less per month than I am on my rental.  I could have stayed in my home and everyone, bank included, would have been better off.  I hope it works for those  who can still be helped.

  • Pete Spames

    the last thing I can imagine doing is giving government a broad expansion of its already bloated power to seize private property. Eminent domain is supposed to be reserved for situations that demonstrate a clear public need. It was expanded by the Supreme Court to cover projects that offer a public benefit. Now, this program takes it another step and says we can use it to offer private benefit to private homeowners and private investors. Even if you like the way it’s used in this program (and I don’t, by the way), you still have to be concerned about how government agencies will take this newfound power to financially help private individuals and use it to help politically connected individuals.

    What about private companies (aka employers) whose debt starts to make life tough? Can we use eminent domain to write down what they owe to the contractors who helped build their new facility or “acquire” their pension obligations to write those down and save the jobs of current workers who will have more money to support the economy? What other bills can we eliminate for the fundraiser crowd?

  • Alig Eichelon01

    I need help, please help me,….

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