Laurie Goodman is not about to say the sky is falling and we should all run into our homes for cover. But she is saying that a significant number of people may not have homes to run into by 2018 should struggling homeowners not receive a little help.
Laurie Goodman is a housing analyst with 28-years of experience in studying mortgage-backed securities for big investment banks. Those seeking reform in the housing market have heralded her research, and she even holds a record for top rankings in her research from Institutional Investor.
In short, when Goodman talks, people listen. And speak she did in an article on CNN’s Money Magazine, where she discusses the philosophy of a housing bailout that seems vaguely familiar, but on a more general level and less bank specific. The need for such assistance stems from the fact that 2.5 million homes have foreclosed since the market burst, and since then a projected 4.5 million mortgage holders have ceased making payments. This is compounded by the fact that millions of homeowners owe more on their homes than they are worth.
Goodman’s concerns lie in the idea that if home prices nationwide were to dip lower than the six percent she’s believes in the next year-and-a-half, more foreclosures will occur, which would cause a chain effect that drives prices even further down. (Thankfully, Orlando is bucking this trend currently.) Nevertheless, should this occur, “more than 10 million of the nation’s 55 million mortgage holders could default by 2018.”
Of course, in Goodman’s estimation, this could be forestalled should banks be more agreeable to working with homeowners. She determined that investors can lose as much as 70% of their investment when homes are foreclosed. However, if principals were lowered by an average of 26%, delinquent borrowers were much less likely to actually foreclose on their homes. Essentially, “if you save a borrower, you save an investor,” said Goodman.
Goodman’s ideas are reaching out, as the treasury department and several state attorney generals are encouraging lenders to offer principal-reduction options with the idea that “one bailout = endless bailouts.” Of course, short sales are always a viable option to foreclosure as well.
While Goodman seems to be working from the premise that many homeowners are looking to save their homes and stay in their area, that isn’t always the case. For those looking to make a fresh start, need to relocate, or simply wish to get out of a bad situation, a short sale now may be the better alternative to waiting for principal reductions that don’t occur. Or worse, do occur, but with steeper interest rates. Regardless of what may happen, the best way for the housing market to fully recover is for everyone, from the banks to the homeowners, to be fully aware of all their options.