Monday, August 6, 2012

The Case For Refinancing (For The Banks Too)

It would be great if the housing market could find a spark. What is out there that can move the market?

Time To Release The Refinancing Hounds

Could refinancing be the spark needed to get the housing market and the general economy moving again? The case for this has to be made. Here are some reasons why in the medium to long term, it should help everyone involved in the cycle:

-          Homeowners – There are many homeowners that have proven their worth by still paying on mortgages.

-          Businesses – Everything connected to housing would benefit from this type of move. Builders would see more activity. Local governments could start seeing higher tax revenue. Families could start living in their own homes.   

-          Banks – Most homeowners have shown that even though they will not be able to refinance their loans, they have not walked out on them.  The ones that couldn’t are already out of the system. The banks should take advantage of this loyalty. The amount of money received right away from the fees will at this point outweigh the loss of revenue over the next 25 years. Some banks that are not as tied to trading for profits as others could use this to boost current period revenue.

The How To Plan

-          First, target all homeowners that are consistent with their payments and are within a certain percentage (maybe 2-5) of the current requirements for refinancing.

-          Offer them a standard refi program with a penalty fee worth the thirty year Net Present Value of the reduced value of the home. 

-          Another option is to attach an annual fee to the mortgage if the Net Present Value of the reduced value is too high.