Should Banks Pay it Forward?

Secret Santas are cropping up around the country. These are people—who mostly anonymously—give money as a Christmas gift where it was least expected. A little old lady toddles into a Walmart and pays off a dozen or so lay-away accounts, so the folks who were buying a TV or some toys on time, all of a sudden find their final payments have been made, and the goods are theirs. Wow, it's Christmas.

Some find a way to slip a gold coin or a big check into a Salvation Army bucket, and quietly, more good is done.

Today I watched a down and out fellow get a $100 bill from a complete stranger. The benefactor was visiting soup kitchens and generously gifting money. Yes, he's giving money, but really he's giving more than money to the folks who were doing all they could to cope. He was offering a belief in their ability to be good, providing them chance to evaluate their life and maybe make a change. As he said, “I'm not judgmental. If my effort can help make a change in a couple of lives, then I'm a success too.”

These efforts at Christmas kind of make you want to see that old film, “Pay it Forward.”

To a large degree, what our real estate based economy needs right about now is a Secret Santa.

Naturally, Secret Santas can't be fair. To be fair they'd have to give everyone a surprise gift—and all of a similar value. No, a real estate Secret Santa would have to reach into the morass of tangled loans and foreclosures and somehow catch-up the loans of some of the neediest borrowers. They would just zero out the deficiency, and give the borrower a new start.

Of course that couldn't happen. There are too many people, too far behind to be able to help them all—but what if, just a few, maybe there is a way. What if all banks who had made loans to home buyers looked over their outstanding loans, and zeroed out the bottom 2%. Not pay off the house, but “catch up” the borrower, so that the loan would be “up to date”, with nothing overdue. Next month's payment would still be due, but the slate would be clean. How about that?

I would submit that maybe even the bottom 10% of a given bank's mortgagors are going to lose the house anyway. So what's the risk to the bank? The chances of the bank actually receiving any of the past due amounts are slender given our flacid economy, but if a fresh start could keep the folks in the house, then both the bank and the family would be better off; if a fresh start could result in some percentage of the residents picking up and turning the mortgage into a “performing” loan, then like the Secret Santa, the bank would be a success in the community too. Could it happen?  Probably not, but then it is Christmas...

On another topic, the “flood insurance” topic reappears for the third time this year. Congress seems not to be able to vote for a simple bill that would allow the continuation of Federal Flood Insurance. The problem with flood insurance lapsing (over and over) is that homes which are sold and about to close but which are in flood zones, can't close without the insurance and so not until Congress reinstates flood insurance. Why is this such a hard topic for all those lawyers in Washington? I write to my senators and reps, but with no results.

But I forgot, they're the ones who determined that our traditional incandescent light bulbs could no longer be sold, in favor of florescent bulbs, and then this week, changed their minds. I would love to see the cost of this “double” legislation. The cost of passing the first bill, the cost to retailers to adjust their inventory, the cost to manufacturers to accommodate the newly perceived demands, the cost to consumers to switch over at least some of the bulbs (the 3-ways are just awful) and the cost to change their minds back to again and allow the bulbs. Maybe it's not in the Trillions, but you can be sure it was expensive and is just another of Washington's leadership boondoggles. November 2012 can't come soon enough.

Dane Hahn is a real estate professional practicing in Englewood, Florida. He can be reached at dane.hahn@gmail.com or at http://www.danesellsflorida.com/.