A Proposal to Solve the Subprime Mortgage Crisis & Real Estate Glut

Hi Brett,

Maybe there should be a new defintion for
"affordable housing for the working middle-class."
Who wants to go to work and give up most of their
earned money for living expenses? Where's the
fun in that?

Maybe the banks don't think Americans need any
other fun than staying home watching cable television
because they don't have enough money to take a
deserved vacation in the middle of winter.

I think we should lower living expenses and use the
money on entertainment, travel, and charity events etc.
At least people will be enjoying their hard earned money.

Hi Brett

Happy New Year to you and family.

I can only agree with you as Mortgage Brokers focus on a specific and crucial part of the loan application thus, saving time and money. I wonder if the banks would be able to cope if they eliminate them?

On this side, the house prices have literally gone through the roof. I think due to two reasons, Firstly, too many new agents who would rather tell the client what they want to hear in order to obtain a listing and greed.

The Banker unfortunately has tremendous power over the market and would rather tighten-up too much and perhaps adjust later in order to cover themselves. Only time will tell if it is a good thing or bad.

Are you still working on Donald for the "OMP" proposal? Years are going by and losses will only be determined by future success.

Those are good points Brett, but here's my take:
The same banks that are getting the glutton of foreclosures and short sales from shakey mortgages are the same banks that issued Visa cards with GIANT lines of credit to the same people. Now, people by nature will grease the "sqeaky wheel". When someone can't pay their bills, they pay the ones that harass them the most. I've seen people take all of their paychecks to pay the Visa card, and skip their mortgage payment.

You know why they do that? The banks don't call you 20 times, your mother-in-law 10 times, your boss 5 times, and your best friends sister 3 times to get your mortgage payment like they do to get your credit card payment. They just send you a letter that you're being foreclosed upon.

If the banks were more responsible with their credit card lending practices, they would be in a lot better shape with the mortgages.

Banks need to shut down credit accounts of people who have 30K lines of credit with 29K outstanding, making minimum payments, get those people on a reasonable payment plan, and right their own ships in the process. If they don't tighten up the credit card lending, then you won't see good debt to income ratios.

Great article Bret! & Happy New Year!

We agre with you, that the mortgage brokers were not the problems. However, the subprime lenders really did a lousy job with their loan to asset ratios. And to further complicate the lenders were the over-inflated appraised value derived in the market-place, for the most part due to the real--estate speculations. Taking risk is not the job of lenders and they need to adjust the loan to asset values
based on real value. Not speculation.

Our soultion to the lenders... provide a high end investor to spead the risk with the lenders. It is way too difficult to even qualify...And focus on the home-owners not the real-estate speculation investors.

The problem is not that of the little brocker ,or the govt for that matter .
The problem is one of GREED by some,and sillyness by others namley the idea that there is no tomorrow .
The US has alway lead the world .But the out of control nonscense seen in resent years is unbelevable .
The answer is simple .Old style banking. Where there were bank managers .
Where a bank manager could size up the person and the risk.
Not this tick the box stuff from people you never meet and who were all under 23 years .

If I understand, the comments posted by Mr. Schnase on 01/05/2009 2:07 PM and your blog are saying the same thing, and you are both absolutely right. Guess we all should work on reducing that.

How about letting nature take its course and let people burn for their mistakes instead of blaming others?

You're really good!!!
You just wrote an article that pushes the hot button for many people in the real estate industry---too bad you can't see the steam coming out of my ears now!

To be honest I don't even know where to start since there is some much blame to go around. Just to let you know something about me, for the past 10 years I have been a certified residential appraiser in New York, covering Nassau County and Queens County. Prior to that I was an active real estate agent for 15 years working basically the same territory. During the last housing bubble I was newly involved in spot building and burned badly. So I've seen this before but this is much worse since it involves the financial markets(Wall Street) as well as those involved with real estate and mortgages.
My colleagues and I have been discussing the insane mortgage products that precipitated this crisis in appraiser forums for the past 2 years. It was generally our opinion that the financial people suffered a serious bout of insanity when mortgages could be issued in various forms with 100 percent or even110 percent financing. When I first started as an agent you had to have some skin in the game to get a mortgage, even if it was a measly 2-3 percent which was available with FHA products. Otherwise you needed 10-20 percent down, a job and a clean payment history on your credit report(remember when there were no fico scores--people and the banks did better) in order to get a mortgage. Additionally the only income ratios I seem to remember from that time were 28/36. Your monthly payment for piti could not exceed 28 percent of your gross monthly income and if you had other debt then the mortgage payment and the other debt could not exceed 36 percent of your gross monthly income. Whatever happened to to common sense rules?? People rarely got into trouble when those guidelines were used. But I really started to get nervous when aggressive banks such as Indy Mac started to come up with high ratio loans. What exacerbated the current crisis was the creation of high risk loans, teaser rates that adjusted too quickly, unrealistic income ratios, just sign here mortgages and let us not forget the perpetual twins of greed and fraud. Adding fuel to the fire was Wall Street treating mortgages as a new and profitable for of derivative. Well the financial orgy is over and we've got to get the regulators, bankers and financiers out of the same bed. We need to re constitute the regulations created after the "great depression" (this one is not so great!). We need to bring back common sense and we have to stop destroying the fabric of america's financial security.
I realize that almost everyone would like there own home and I am in favor of any sensible policy which can accomplish this. But if the rules had not been changed so that almost everyone qualified for a mortgage this mess might not have occurred. Additionally just imagine if unqualified buyers were not in the market. Would prices of homes have escalated as much as they did? Would speculators have been enticed into buying up properties that weren't even built yet? I think not!

Okay, so enough about the past. Where do we go from here? Since housing is the core of wealth for the average American sensible guidelines need to be imposed and enforced at all levels of the process. Fannie and Freddie need to be privatized again.
I just went over the 4000 word limit so if you have any interest in what I've been saying see PART 2 of this post.--thanks--allen

PART 2--from allen

At the grass roots level for brokers, agents, and mortgage people there must be training education, licensing, continuing education and codes of ethics. In New York State real estate, brokers, agents and appraisers must be licensed, educated and trained. If they violate any of the laws of agency, or have ethical problems there are serious consequences which include suspension, losing your license, major financial penalties and even the possibility of jail depending on which laws you violate. This is not entirely true for mortgage people. Bankers need to be licensed and so do mortgage brokers but the loan originator or account exec's or whatever you want to call them have virtually no requirements. Oh sure they get company training but it's primarily to get them acquainted with the mortgage products and sales training. So much money was being made that these sales teams were the tail wagging the dog. I can't tell you home many broker offices I left when I saw the attitude and contempt these very young people had for the profession, their customers and anyone else that didn't see things their way. And generally it was the appraiser who didn't always see things there way. Several times with various brokers and bankers I was asked if the comps for a particular property would allow the loan to be originated. If the answer was yes I would get a deal. If the answer was no then I wouldn't get business. Since my answers were no more often than yes I rarely received business from mortgage brokers. If the people who answered the phone new there would be consequences for their behavior the industry would be well served. Most people would not put their licenses in jeopardy just for a commission if they thought they could lose their livelihood.
There also needs to be more seapration between appraisers and bankers. The industry is moving in that direction but there are still loopholes. Appraisers need a national private organization such as the National Association of Realtors to protect and defend them from powerful financial sources.
I can go on and I probably will in the future but for now I will settle for some common sense and thoughtful regulation. After we get through this mess we can get back to the blamegame, but I hope not.
Anyone reading thus far should contact their senators and congresspersons to pressure them into doing something for the average American caught in this crisis. The banks, wall street and the auto industry still have their lobbyists to help funnel bailout money to them. the public is so fragmented we don't have the same impact. But we can create the same impact by pressuring our national representatives and remembering to vote.
Many folks that are upside down, or underwater depending on the jargon of your area can be help by simply doing loan modifications. Whats wrong with a 4 percent mortgage for 50 years. Make that adjustable at the end of 5 or 10 years. Most people could afford the monthly payment under those conditions. Besides, most people move in less than 10 years and if the market recovers a little they can pay of the debt and move on. Let me know what you think about these topics so I know there's still a human pulse out there.--thanks--allen

I do believe that mortgage brokers need to take some of the blame. I am a successful single family home real estate investor myself. I formerly was a real estate agent as well. When I conventional lending deals many of the mortgage brokers would coach the buyers how to get the loan approved. Whether it was forging financials or borrowing money for down payments 31 days ahead to season the cash, many mortgage brokers did whatever they could do to get the mortgages closed.

Also, the government forced the lenders to lend money in inner cities to unqualified borrowers in bad neighborhoods. Neighborhoods with typically high foreclosure rates previously.

Yes, the banks need to take blame for not standing up to the government, but then they would have been put out of business.

To me the best strategy for single family home investing is owner financing whether a lease option or seller held financing. I am a big proponent at http://optionbandit.com of getting a great deal and getting creative with the financing.

Brett,
I thank you so much for focusing on the solution not the problem by blaming the people in the industry. Donald himself specifies focusing on the positive in everything I have read of his so far, most recently "Never Give Up". To me he is a mentor that I have admired, respected and gotten inspiration from for years. He is the top person I would love to meet someday in my life time.

I have been blessed to be a loan originator and Real Estate agent in the greater Seattle Washington area. I started my career 19 years ago with First Interstate Bank and have seen quite a lot of changes. The past 12 years I have been a loan originator for a locally owned small mortgage broker. It’s no surprise that the "mortgage broker" entity has been the target of many banks despite the good they have done and it appears that it’s finally happening. So many are closing their doors because they are running out of options. Just today Chase no longer is doing wholesale, and our own small town mom and pop mortgage broker has decided to merge under a bank in order to survive. Overall I see it as a strong move and I’m all for it.

However, over the past recent months its gotten increasingly harder to fund loans for even good credit clients for any number of reasons now because the pendulum has swung so far the opposite way. It’s created a HUGE mess for our nation and the consumer but also an over looked group consisting of; the good hard working LO’s (which by the way do have to get licensing in our state as well…but about 10 years to late…that standard should have always been there and I’ve operated with integrity as though it was there all along), whole sale account executives (AE’s), Real Estate agents, underwriters, processors, appraisers, title company reps, escrow agents and anyone I may have left off… they are all important people. They are also, now added to the growing list of casualties that have seen their income stop, savings depleted, and last available credit exhausted. Too little too late…. I have seen several of my friends and colleges in the industry who had earned a good honest living, go flat broke over night, have to deal with foreclosure and bankruptcy themselves while now worrying that their very lively hood now requires a license that forbids personal financial failure. It’s a great concept that should have been the standard all along. I hope there will be a way to retro activate or reverse these negative credit effects for people who fell off the financial cliff in the wake of all the overwhelming disaster that’s been going on as a result this mortgage melt down.

The underwriting guidelines set forth by the investor and commercial banks in so many of these cases were followed by myself and others in the industry like me who worked hard on behalf of their clients who were trying to buy a home or get a refinanced to better their situations. The big problem I have seen over the years is lack of education and responsibility on the consumer’s part also. I believe it’s tied to a weak link starting in the public school system that doesn’t have enough financial education in the curriculum and in the earlier years not just at the senor grade level. I am grateful for Suzie Orman, Robert Kiyosaki, and of course Donald Trump. I’ve been an advocate of education and self improvement, encouraging my clients to read and follow good sound advice and role models that I have found from these top three amazing individuals.

(Continued)
I also agree with make sense lending as far as lowering the debt to income ratio to fit what people can really afford with real numbers. However, its been hard to know what is what even for seasoned people like me because so many write offs that self employed and commissioned people claim, my guess has been that they must be out right cheat on their taxes. It’s obvious that the sloppy combination of high loan to value (LTV), high debt to income (DTI), and poor performance of prior credit history shown in the FICO score system would have been the recipe for foreclosure. I understand the reason for the stated income loan programs but that paring with the other 2 high risk guidelines were not a smart move for anyone. The lenders that required 24 months bank statements showing deposits would be a good program to bring back. It shows "income" that didn’t always make it to some of these tax returns. The transfers between accounts were not counted in the income totals but this is a way for sampling the clients capability of earning a good living over time regardless of what was shown on the tax return. I am sure that the IRS has some ideas that could also help remedy this type of behavior among the people that are trying to evade paying taxes, such as an easier flat rate type of return but nothing to reduce the importance and need for the CPA’s. There are so many rules and loop holes, its just a matter of who the client wants to fool; the bank or the IRS. There’s got to be a solution to this that’s a win/win.


So much of the industry has just ground to a halt. Property is just sitting for sale for months….years in some places and not many banks have been lending but rather declining files and restricting guidelines but I am seeing positive flickers in up coming changes and new higher LTV’s and Jumbo loans again this New Year. I do have a few clients such as this one that I can’t find financing for. He is a great investor client who has been a landlord for about 20 years. His file is full income verified; clean taxes, 796 FICO score (which is premium) net cash reserves in excess of any lender requirement, and because he owns over 11 properties I can no longer find financing for him. All the investors including portfolio restricted to 4 investment properties. This client and his partner are worth approximately 5.5 million (before values came down). They have always used credit wisely and have created their own little empire. This type of client is helping the community by cleaning up old homes that needed repair and providing affordable rental housing. He is a very good risk but I can’t find any lender to finance him. He’s done a lot of what Robert Kiyosaki encouraged but I know he’s never read one of his books. He did this on his own but now that there are so many opportunities as far as homes on the market he wants to buy, renovate and rent these homes but I can’t find lenders to take the risk. I am honestly hopeful that you or whom ever, may have an alternative pool of investors that I could forward him to, that would offer competitive rates to what banks were offering. Owner financing is case by case. I had hoped there would be a large entity with funds to lend that would see the benefit and take the risk on this type of client and finance him at a modest cost…somewhere in line with what current non owner occupied interest rates are. My only encouragement to him so far, and those self employed folks that were of the "stated income" nature with good credit is to wait until those programs come back. What are your thoughts?

(Continued)

I have to admit that it feels great to have those words of understanding and encouragement from you Brett and several of those on the site that I’ve read so far…it’s a good time to all pull together. It is a free country, and we are free to state our opinions and I do know some won’t have positive things to say so that is why I am specifically putting it out there to everyone that I appreciate solution oriented, cooperative, collaborative and positive problem solving discussion feedback and nothing less… in other words, be kind in what you put up there. Thank you. Adrean in Seattle

Maybe there are some other way to run the Real Estate(RE) Business in today's enconmic: have the " Richers" to help the " Poors". Instead of rely on the bank as the most common way to lend the money for RE investment in past 100 years. What if the developer to open a door for those propective investors who are willing to put themself into the industry as part of the team. Have long term or needed term of contracts prep. for group of individales who understand the risk and profit on some RE projects to increase the cash flow or equity investment either could be 20%or 40% of the loan. It's like sale the franchise business to the individuals to help on day to day operation.

My point is waiting for the bank or any mortgage lender is one way to get thought, but to give our own hands for people who needed is also another way to help each other. There will be mutual benifits from each side. We just need some powerful or creative person to start on it as good model. Those are just my little thoughts.

I could not agree with you more. I am both a banker and a broker as well. I also own a mortgage processing company. What I suggest on top of reducing debt to income ratios would be to have lenders impose a strict appraisal review process where collateral values can be verified. Right now, there is a process in place, but in my opinion is ineffective. The third party companies that are currently reviewing the appraisals; and therefore approving or denying the values, are nationwide companies. They are not experts in the areas for where the collateral is located. I suggest having lenders hire an on staff reviewer, that way they can take some responsibility for the appraisal passing or failing. I feel that there should be one reviewer for every region that the organization lends in. I feel that reviewer should be an expert in that region. The lenders have to once again start lending money, until the housing market cannot and will not recover. They have to be smart about it to avoid another crisis in the future.

Maybe this idea is to simplistic - Why do we continue to bail the banks out - They do nothing to help the working person or free up credit -why not give the money lets say 50,000 to every person with a mortgage late or not - trust the people to pay down their mortgage (saves the Bank) pay down their debt (saves the bank and increases spending) pay off school loans - invest back in the stock market
let alone people like myself who will take the money and build business that will provide small business jobs ( not Gov't paid infrastructure positions) - This will increase competition in the business world and keep inflation down and build a strong small business economy -which is the backbone of our society. By the way where are the small business voices - we are in every small town and major city?? Why have I not heard this voice?? I feel this is a little off the subject but would save the housing industry and economy - we know the gov't has over taxed for years - we can fix this by giving the money back.
Thanks

I believe, in order to change the direction of our economy, we have to address the root of the problem which is still standing there like a giant elephant in the room. It is the mortgage and foreclosure crisis. This crisis was a result of mortgage fraud, lack of mortgage regulation, and predatory lending which have artificially inflated and subsequently ruined our housing market. The mortgages I am referring to are not just sub-prime, but also the large amount of Alt-A and Choice/Option ARMS which are about to begin defaulting in massive numbers. These bad mortgages have caused the foreclosure crisis which has resulted in plummeting property values, a surplus of homes on the market, the collapse of the homebuilding industry, and the failure of major financial institutions because of their stakes in mortgage backed securities which they illegally sold and guaranteed by creating "credit default swaps". The collapse of our real estate market, homebuilding industry, and financial institutions have been the leaders of our economic downturn.

So in order to address the root of the problem, I believe an act of government is necessary to reverse the toxicity of these mortgages to our economy. A federal mortgage reversal or reset is needed now to make up for the lack of oversight of mortgage and financial institutions. All mortgages need to be reset to one low fixed rate for every mortgage in the country. These mortgages should be guaranteed by the government, and if they end up in default, the government will acquire a real estate asset instead of simply wasting money buying "toxic assets" or "bailing out" companies who are destine to fail unless the root of our economic problem is addressed.

Resetting every mortgage in the country to one low fixed rate would:

-Stop the foreclosure crisis which is about to realize a devastating second wave
-Change the toxicity of mortgage backed securities rendering them safe and relieving the government of having to acquire them
-Rescue the financial sector by strengthening their mortgage backed assets
-Eliminate the need for a cash stimulus package for Americans
-Fix the housing market by reducing the glut of foreclosed homes on the market
-Fix the homebuilding industry by reviving the housing market
-Save and revive the auto industry by saving American homeowners hundreds of dollars per month and thus allowing them to afford new cars
-Rescue every sector of our economy that relies on consumer spending since Americans will have so much more money to spend
-Home rental rates would come down dramatically too since landlords will have lower mortgage payments which will help even the poorest in our society.

(ctd...)
Let’s say the average family has a $200,000 mortgage at 6.5% interest. If you were to lower their interest rate to 4% for instance, they would save $309 per month, which they will inevitably pump back into our economy. You wouldn’t need to give cash to Americans in the form of a stimulus package or tax cut because this is in effect a stimulus package that keeps giving back every month.

The current policy of throwing billions of taxpayer dollars at every company which is in trouble, without addressing the root of the problem is simply fiscally irresponsible if you ask me. I do understand the enormity of the task and the ramifications of letting such massive companies fail, they have to be rescued so the economy doesn’t get exponentially worse. But to do so without getting to the root of the problem is just going to leave the conditions fertile for other companies to fail.

This seems to be achievable to me, and with one giant stroke of the pen, the economy could be right back on track. I’m sure banking and lending institutions won’t like having to change their overinflated interest rates, but they need to be part of the solution since they were such a major part of the problem. They will be better off in the long run having guaranteed mortgages and a robust economy propping them back up. And while we are at it, capping the ridiculous interest rates the credit card companies burden Americans with isn’t a bad idea either. Anyhow, I heard Senator Mitch McConnell on CNN this morning talking about his interest in exploring a 4% mortgage proposal circulating through congress. Maybe someone is finally coming to their senses?

Josh

Four words....

LIVE WITHIN YOUR MEANS

If you bought a house since 2005, you're a bit worried whether you 100% financed with a 5yr interest only or fixed 30yr at 5.25%. Fact is the house you are sitting in is under water by 100's of thousands depending uopon where you reside. How to fix it? The ONLY way you will keep people from walking away (because it DOES become a business decision just like it is when you DUMP a stock that has dropped) is to reset the loan at appraised value and forgive the balance. When you look at a modest appreciation scale, it will take +10yrs to acheive break even status. Now if you're in your late 30's, now you're in your late 40's with a break even loan that you dumped thousands a month in mortgage payments, taxes, and operating income for apparently nothing.

COUPLE COMES IN TO TAKE AOUT A TRADITIONAL 30 YEAR MORTGAGE (VERIFICATION OF EMPLOYMENT A MUST!, RELAX CREDIT SCORE)

DURING THIS TIME, COUPLE EXPERIENCES HARDSHIP AND CANNOT PAY MORTGAGE.

COUPLE NOTIFIES MORTGAGE COMPANY AND RULES ARE PLACED:

1) A DETERMINATION IS MADE ON HOW MUCH THE COUPLE CAN PAY.
2) MORTGAGE IS PLACED IN LIMBO AND COUPLE WILL PAY RENT (BASED ON NEW RATE) UNTIL ORIGINAL MORTGAGE PAYMENT CAN BE MET.
3) DURING THIS TIME, RENT IS NOT PLACED TOWARD MORTGAE BUT ALLOWS COUPLE TO STAY IN HOME AND MUST PAY FOR INSURANCE AND UTILITIES AND UPKEEP.
4) WHEN ORIGINAL MORTGAGE PAYMENT CAN BE RESTORED, MORTGAGE IS PLACED AS ACTIVE.
5) DURING THIS TIME, IF RENT IS PAID ON TIME COUPLE WILL NOT BE HURT BY CREDIT SCORE.
6) MONITORING WILL BE DONE BY OUTSIDE VENDOR.

Put a leash on the lending institutions and stop foreclosing. Those who are going to face trouble with their jobs and need to have their Option ARM loan rate frozen for a couple of years, let them have that. If they have not missed a payment, never delinquent and are looking at challenged times, why would you want to foreclose when you have a borrower who is paying the monthly note?
I did not even need to read all of the published answers. I have said for a year....the lenders can offer loans at 1% if they choose, but the majority of borrowers will not meet the same "qualifying criteria" because it has not changed. Still the same; 2 year work / income history, L.T.V., Debt To Income Ratio, let's not talk about credit history. This is all set up for failure. America will not longer be the America as we have known it. (Maybe that's not so bad...dunno at this point) There will be "outside of the country" investors buying in bulk...maybe Bin Laden will be one of them. The number of deserted foreclosures will still out number the amount of people that can / will buy. After this, maybe real estate will never be the "best investment" as one thought. Those who are on Option ARM loans (and other loans)and have not missed a payment, not delinquent ever....should be allowed to have their loans frozen for 2 years to keep their property(ies) and try to change / improve their financial lives. So, if you have a home that has a $350k loan with a new appraised value now of $300K...it goes into foreclosure, sits for some months, sells again for the "fabulous new low amount" of $250 with the new buyer putting down $15K and their monthly @ $1,100.00 for 30 years.
Let's not forget that the previous owners not given a chance to re-negotiate the loan and stay in that same home @ $1300 month go homeless with no way to start over again. Oh...BTW, there was substantial downpayment put down.....no 100% financing. How about that.
Why can't there be a leash put on the lending institutions to stop foreclosing for a period of time. If you have a loan payer that is still up to speed with paying on their loan and nee some balancing help, the banks should have to be compelled by law to work with them. They will still get their monthly note and allow the borrower to have a chance to get better. Let us not forget that when the predatory Option ARM loans first started to fail, not nery a loan officer contacted other previous Option ARM clients to let them know they should try to re-fi while they had a chance. They just let it continue to mount up. Half of the Loan officers never fully explained the true terms of the loans to the applicant....they just emphasized the wonderful low rate and recommended that ya re-fi at the end and start again.
The big time multi-billionair investors knew these loans were developed to fail, but I don't think they realized that it could possibly touch their investments and corporations like it now has. Well, some of them have gotten away scott free. When First Magnus and Countrywide fell in September 2007, the big-time investors knew it was going to happen long before the public did...long before most of the loan officers themselves knew. Most of the loan officers were ill-trained, or not really trained at all. They just offered a product that was a way for many to "buy a home". Come right down to it, the only time you are a "home owner" is when you have a home that is paid for. Until then, you are still a "renter"....You're just rentin' from the bank directly. Miss your rent payment for 3 months and chances are...you're outta there! Oh and let's not forget, property tax. Don't pay that for a while and guess what can happen....you lose your paid for home. Pay the mortgage for 29 years....get disabled and cannot pay for a while, guess what can happen.....

It sounds audacious, doesn't it? For the best defense against future recession, Joe The Homeowner
must take charge of mortgage affordability.

We should have learned by now that we can't rely on Wall Street, financial institutions or banks for the health of our economic future. In light of that, you won't be surprised to hear me say that affording a mortgage has nothing to do with loan approval.

Then again if you eavesdropped on applicants receiving news of mortgage loan approval, you might be a little surprised at what I used to hear. "Kate, how much can I borrow? I had no clue I could afford THAT much. Wow, this mortgage stuff is easy."

It makes me gulp to think how much shock and awe I observed over loan approval. Please pay attention to what I am going to say. The bank has NO idea how much mortgage you can afford. None.

Qualification is the focal point of home loan lending, not how much mortgage a perspective borrower can afford. A bank's main concern is to guarantee you will pay back your mortgage in a timely manner. Rightfully so, they owe this to their investors. And to carry out this responsibility, they issue mortgage approvals based on predetermined criteria.

Think of it this way. The bank uses underwriting guidelines to determine if you can pay back their investors' money. But you have expenses that would not factor into the bank's decision.

For example, how the extended health care of an aging parent will impact your mortgage affordability is your responsibility to determine, not the bank's.

I'd even dare to say it is common sense. But the tendency in the financial world has always been to follow the herd. We've all heard the crowd. The economy is strong! No fear of unemployment! And the worst mantra of all, real estate values are never coming down!

Let's never forget it was Fannie Mae vadvertising on TV, "Mortgage loan approval and purchasing a home can be THAT easy." Just the opposite, today's gloom over real estate values and the mortgage meltdown have turned extreme optimism into extreme pessimism.

Joe The Homeowner is at a crossroad. He can choose to dwell on the past error of sky high optimism. But I say, Joe don't allow the fear that accompanies current doom and gloom to dominate your thoughts and chart your future actions.

In fact, I have a proposal for you. Buy straw hats.

Let me tell you a little bit about straw hats. J. Paul Getty, founder of Getty Oil Company was one of America's wealthiest citizens during The Great Depression. J. Paul Getty continued to invest. "I buy straw hats in the Fall," J. Paul Getty explained.

Joe The Homeowner, Fall is here. Don't buy into the doom and gloom. Stop charting your actions with the pervading pessimism. Depend on yourself and take responsibility for affording your mortgage.

It is within your power to prevent another mortgage debacle. Joe The Homeowner, buy straw hats in the Fall.

What the government should be doing is buying up mortgages on a temporary basis, and then renting out these properties to the families who are living. The people would have the option of repurchasing the home after living there for three years without missing a rent payment. In the meantime, the government would be taking in revenue, a family would avoid being put out on the streets, and a panic would be avoided in selling off real estate in a particular neighborhood.