Can We Afford This Mortgage Revision?

Mortgage revisions may help many homeowners keep their homes but in many cases that may not be enough. "Toxic" mortgages were only one part of the reason for the collapse of the housing bubble. Home locations, sizes, maintenance and operation costs are a few of the other "toxic" problems the plagued our housing stock. And unless all of these factors are taken into consideration, a mortgage revision may just prolong the crisis and prevent practical solutions.

Index

  • The concentration of mortgage defaults in certain geographic areas is more proof that the location of a property is a key to its value. And that a revised mortgage is only affordable if the property is in an areas with ample jobs, schools and other essential services.

    The housing boom resulted in too many homes being built on "affordable" land. And too often the land was affordable because it was far from jobs and services. In this regard, the important questions to answer are:

    Do the lower mortgage features offset any deficits in the location of the property?

    Are jobs available in this area that make these homes affordable?

    Will the increased commuting costs offset some of the mortgage savings?

  • The obvious basics are:

    Heating and cooling costs are proportional to the size of a home.

    Maintenance costs are also proportional to the size of the home.

    Larger homes require more furniture.

    Smaller homes cost less to operate and maintain and those costs don't go down over time.

  • I sent the following letter to the New York times in responce to an article about the mortgage bailout plan:

    "Chairman Bernanke maybe correct in proposing a bailout for the the real estate market (NYT 12/5/08). But in this case as with any of the other governmental interventions, the rules for such a bailout must also address some of the problems that resulted in our current economic crisis. Regulations for such a loan program must address issues such as home affordability, the nation's energy policies and climate change.

    "In order to qualify for such subsidized loans, home buyers should be able to show that they can afford such a mortgage as well as the other costs associated with home ownership and all other living expenses. A contingency fund must be included in such a budget. The individual beneficiaries and the nations economy will be primed for a new crisis without such a mortgage qualification process.

    "Restrictions are also needed upon the types of properties and homes purchased with these subsidized mortgages. Properties in flood plains, wildfire areas and those subject to severe storms or earthquakes should not qualify for such programs or require special building techniques and materials. The sizes of these homes must also be limited. Subsidized loan programs must help reverse the recent tendency to build McMansions. The additional material and energy costs needed to build these large homes are a precursor for their larger and ongoing energy and maintenance budgets. Restrictions like these will make such homes more affordable to the current home buyers, future owners and our society.

    "Such rules and restrictions must be carefully crafted in order to produce the desired results and reduce some of the inevitable red tape. A failure to deal with these issues will most certainly promote another housing crisis and a housing stock the reduces our ability to deal with the energy crisis, climate change and other disasters."