Hillsborough, Burlingame Luxury Homes Real Estate

If you've been reading my blog for any length of time you know I talk about our need for affordable housing, and lack thereof, in San Mateo County and my concerns about this. What if there were a way to permanently change this issue? What if there was a way to put a lot of homes on the market at low rates so that our teachers, police, firefighters, and others helping to support the backbone of our community had a way to buy a home of their own? Would you like this idea? I do and I am going to attempt to explain an interesting proposal brought forth to the people attending the Inman Real Estate Connect in New York yesterday by John H. Vogel, Jr., Permanent Adjunct Professor with Tuck School of Business at Dartmouth.

Professor Vogel entitled his speach "What Went Wrong" and began by talking about how we got ourselves into this financial mess, and distilling in one easy to visualize point on how big it is. Think about the states representing all of New England and you have the equivelent of the 2 million homeowners who will go into foreclosure within the next 2 years. But, let me bring this visual down closer to home; in the 6 Bay Area Counties (Alameda, Contra Costa, Marin, San Francisco, San Mateo and Santa Clara) there were 2,186,182 homes noted in the 2000 census. That's almost every single home in our area and that's the equivalent number of the homes to be affected by the mortgage mess. Those homes are/were filled with hopes and dreams and people. Holy Cow!

Let's start with what the professor says brought us to this crisis. A change in Risk Tolerance and this took place between 1996 and 2006 with the thoughts that risk could be eliminated by hedging across all financial segments. The Sub-Prime began in 2001 and ran through 2005 paying high yields with low risk. Beginning with 2000 housing became unaffordable for most people and especially so in California with an 8 to 1 ratio on affordability. Compare this to the 2 to 7 ratio for most everywhere else in the country. Everything was done for a drive for yields. Greed in my book.

So who are these 2 million families who are going to lose their home? Looking at bankruptcy data correlation, they are families with at least one child. It is anticipated that 1 in 7 will declare bankruptcy - this number is greater than the number of people who will graduate from college or have a heart attack over the next two years! 90% of these people are middle class and out of this group, half have had medical issues to force them over the financial brink and 75% of these people, by the way, have medical insurance. We are talking about people like you and like me. They could be your next door neighbor.

Unlike our leaders in Washington, Professor Vogel does not think we should allow the market to have its way. He has an interesting proposal called the Last Chance Mortgage Program that is simple to do, and simple to understand. In fact, it would be pretty easy to roll out nationally as some things are already in place on the federal level. He thinks everyone needs to share the pain in the financial mess by doing the following.

1. Re-assess all loans that are to be foreclosed to 80% Loan-To-Value including the Secondary Mortgage Market, and keep the value at this level. Allow those who can, to stay in their home.
   
2. Make all of these homes permanently affordable since the value of the home will always remain at the same value without any further appreciation. Yes, it will mean that some homes will be worth far less than the market dictates, but they will be occupied by entry level home buyers and provide affordable homes to those with normal incomes. Pride of home ownership should help to maintain the homes.
   
3. Neighborhoods will stabilized with all homes being occupied and property taxes being paid rather than seeing blocks of empty homes.
   
4. The prices of these homes can not appreciate in value over time, even when sold, but the homeowner gets the benefits of home ownership and the tax deductions on the mortgage interest and property taxes paid.
5. When the homeowner wants to sell the price is fixed and someone new can have the benefits of home ownership from the same entry level pool.
   
6. This can only be available for Owner Occupied housing, not for investors.
7. Prices are capped at $1 Million which will allow many San Mateo County homes to participate.

Keeping homes at artifically frozen levels allows for so many of those left out of the homeowner pool to enter. Their fixed costs will be much lower than market conditions. If the homeowner wants to move up, they will have to meet conforming standards with money for a down payment and will not have the ability to leverage from this home. Is this a win-win for everyone? Probably no, but it's a start.

The Professor believes that we need to do this or the recovery from the sub-prime mess could take years. What is interesting is how little is being made of this sub-prime financial mess by the candidates for President of the United States. Only one of the major candidates running has a proposal about mortgage lending as an issue. I went through every one of these candidates websites and yes, only one mentions it. This is a huge crisis for our country, one that will ultimately effect each and every one of us in this country and I am quite surprised that only one major candidate addresses it. Take my word for this, San Mateo County will feel the mess at all levels. Not in the same ways as others parts of the United States, but we will still feel it because after the mortgage crisis abates, we will be dealing with the credit crisis. We all have credit cards so hold on to your hat....

If you think this is an interesting way to open up affordable housing to the citizens of San Mateo County, and to help those close to losing their homes through foreclosure, let our elected officials hear about this. I am going to do this and I hope you will also. To learn more about this interesting proposal look up Professor Vogel online.

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