On Tuesday, the United States goverment and the nation’s fourth largest lender, Citigroup, announced help for homeowners who are struggling in the nation’s mortgage crisis.The Federal Housing Finance Agency, which controls Fannie Mae and Freddie Mac, is reaching out with a plan to keep people from losing their primary homes.  The plan, which goes into effect on Dec. 15, aims to help homeowners who are already in the foreclosure process, get fixed rates they can afford. The program offers either a reduction in principal or interest rates, or a loan extension to lower monthly payments.Federal Housing Administration Commissioner Brian Montgomery said it’s still up to homeowners to pay what they owe.”This is not loan forgiveness. These are terms that are affordable to borrowers,” Montgomery said.Citigroup is also taking steps to help the half million of their clients who are current on their mortgage payments, but may face a future financial crisis.The company is halting foreclosures and urging borrowers to call if they face job cuts or any other loss of income.”We are reaching out to those homeowners before they run into trouble, before they become delinquent,” Citigroup’s Eric Eve told Local 10.

Miami mortgage broker Grant Stern said it’s a great move. Due to the housing market’s downturn, many of his clients, like homeowners throughout Florida, owe more on their homes than what they are worth.”When I tell homeowners it’s not their fault, I can hear the relief in their voice. They realize they’re not in it by themselves,” Stern said.  Financial experts believe these plans will offer relief to some, but they won’t bail out everyone facing foreclosure.

It’s always nice to know that someone is interested in your opinions, and in my humble one, the direct aid to homeowners is long overdue.However, there are some important measures that need to be introduced to prevent future bubbles like . . . Yes, banks are losing money because of the industry wideerosion of lending standards in the boom, but for typical consumers, they had as little to do with that as making the sun rise in the morning . . . A little of this earlier on when the subprime loans started to fail might have stemmed the crisis that we are now experiencing before it grew to epic proportions.Now that the interventions are out of the bag, it is not going to be so fast a recovery, but maybe the pain of it all will spur new, and constructive ideas in mortgage lending standards.

For one, I think that for starters, investment properties need to be underwritten just as commercial property unless the owner is truly and actually planning on occupying the home.This means ensuring that there is not only sufficient income to pay the loan, but actually free income from the property after the loan and all expenses are paid.Currently, there are no such restrictions on “negative equity” in investment property, and after this mess, there should be.

Second off, post occupancy inspections should be required for any borrower who owns more than 1 residential real estate property. The apartment that I am renting currently is in foreclosure, why?Because the landlord bought multiple properties and called them owner occupied even though they are investment, and did that to get more agressive loans (80/10 loan combos) with better rates than a 90% investor purchase loan.This means that even with preferred terms his investment doesn’t work, but the fraud he (or his loan originator) committed only compounded the problem.

These are just some of the fixes that need to be introduced to the market.Stay tuned to this blog for more to come . . .