Will his idea work?
It’s not uncommon to find solutions to resolve the real estate debacle in the country. We’ve been following the Treasury Department find a way to squeeze the bail out recipients and several organizations lobby their proposals to Congress. Now, we’ve come across a report by Tom Kelly of Inman News about Tom DiMercurio, founder of an online foreclosure info website, on how he’s going to fix the crisis like what he successfully accomplished in Houston 21 years ago. The detail of the plan states, “If Fannie and Freddie (who collectively have more than 100,000 REO assets) allocated $5 billion for rehabilitation of those properties and $20 billion for financing, they could self-finance all of their newly refurbished inventory with low down payments, reduced closing costs and quick turn-around times—while removing 100,000 assets without affecting liquidity—allowing that cash for other transactions. Fannie and Freddie would then have a $25 billion book of new loans from borrowers who value the homes.”
If you’re baffled by what he is suggesting, the plan is simple: fix the real estate owned properties and finance the sale to reduce the fees. The two government sponsored enterprises will act to rehabilitate foreclosed homes that have fallen into disrepair. A dilapidated unit is sold at a bargain in the market which eventually piles in the total housing supply. DiMercurio expects that this will discourage low-price sales and home auctions.
There are three things that we have to note in this proposal. First, DiMercurio needs to realize that the GSE’s losses in the past quarter have been severe so a $5-billion refurbishing allocation is quite impossible, not even a $20-billion financing scheme. Second, the market conditions during 1988 are not the same as of today’s except for the high rate of foreclosures that also occurred. Third, low down payments won’t always attract a deluge of homeowners even if these come from Fannie and Freddie. More buyers are getting careful now.
Should DiMercurio’s ties with Rep. Barney Frank prove to bear fruit from his idea, we all expect a credible financial resource and a readjustment of his plans according to current market trends. If successful, it can provide hundreds of jobs in home construction and slash a significant amount of foreclosure cases.