Pocket Management - Rent vs. REO
I’ll coin the phase, Pocket Management because it is relevant to the distress market. Everyone of us knows within our state, there are areas that are doing well or at least stable and some that are not. Some restaurants are full while others are closing. These pockets have unique economies of scale and can be micro managed. Stop trying to solve all of mortgage problems and concentrate on the most needed.
How? Allow me to draw an analogy, triage. We are in a war on our way of life and just like on the battle field, when many are hurt, you first address the most needy. It is unfortunate that the administration tried to fix it all at once. In triage, you stop the bleeding. It is a strategy of determining the priority of patients treatments based on the severity of their condition. This rations patient treatment efficiently when resources are insufficient for all to be treated immediately. The term comes from the French verb trier, meaning to separate, sort, sift or select. That is what we should do even today. Sort, sift and select the most needy. Triage results in determining the order and priority of treatment and disposition. This is no different in the mortgage market. Triage in this environment means “JOBS.”
So triage in its most primitive form; those responsible for the removal of the wounded from a battlefield or their care afterwards have divided victims into three categories:
1. Those who are likely to live, regardless of what care they receive;
2. Those for whom immediate care might make a positive difference in outcome.
3. Those who are likely to die, regardless of what care they receive;
We should look at triaging the mortgage crisis much like the above categories as follows:
1. Leave well enough alone, good areas with jobs and are stable will survive without intervention but do nothing critical to the job market. See below NASA comment.
2. Use whatever means you can from modification, forbearance, DIL and make a deal as they’ll help stabilize the area.
3. The under employed, upside down, local economy and infrastructure collapsing, they are the bottomless pit unless extreme resuscitation is used. Again, address only the pocket most hit.
It’s pocket No. 2 that should have had our initial focus, not the whole economy. As in triage, the immediate care given to the 2nd pocket, will make a positive difference. Please note: Do not compound the problem like the pending disaster about to happen in the closing of NASA. The ripple effect goes way beyond the 20,000 of lost jobs. It will take several stable pockets of homeowners in Texas, California and Florida into a No. 3 position in the triage tree of treatment. I am reminded of a movie quote, “dead man walking boss.” Scale back, refocus but not destroy several pockets helping to stabilize an area.
Pocket No. 3 is the most talked about and hardest to fix. On the battle field, you’d put the bayonet on the rifle and stick next to the body. In this environment, you’d foreclosure and let the market handle it. As mentioned above, why don’t we try resuscitation? Rent it to the homeowner. His rental payment picks up the P&I and the investor handles the taxes and hazard for the next year or two and bleeding is stopped. Can all be resuscitated? No but some now have hope while we work on the job market. Otherwise, it’s a tombstone that reads, “here lies the last subprime borrower and our economy.
So one solution is to rent temporarily. It’ll stop the bleeding. Please go to this link and review a study by the Center of Economic Policy and Research, “Gains from Renting:”
While I have this forum, one last comment on the entire crisis. Virtually everyone on the planet benefited in some from way for the hugh growth of the US housing market. From builders, lumber, carpet, TV’s, appliance makers, financial firms, cars dealers, toys for the 2.5 kids and furniture all purchased from all over the world. Every new homeowner bought stuff and that stuff came from everywhere. So if we are causing issue around the globe, I can live with it, you shared in the profit, so you share in the loss.
H.R. 5028 does not go far enough. It needs a “National” rent to own policy allowing the renter to repurchase the property using new financial tools and credits. You can do a “lease to own,” today but it’s not a friendly vehicle to get financing.
Folks, it’s clearly about jobs. We might make less, but nevertheless, we help support a re-growth, albeit a slow one, but still a growth. Pocket by pocket. Let’s get the baby boomer retired and create new jobs.