Sound to good to be true? Well, it appears to be happening as you read this. A new start-up called Loan Value Group is doing just that. And it appears to be working and gaining interest. According to a recent article in the Wall Street Journal 3 hedge funds have not only participated but have (or are in the process of) increased their level of participation.
How does it work? Does it work? Basically, an underwater (where the value is less than the loan amount) homeowner will receive a bonus to keep making their payments rather than walking away from the home. While this bonus will not cure the negative equity, it will soften the impact while time increases the home’s value. As to does it work: time will tell. Apparently some banks think so, and more ar looking at the program. We think it can. We think that many of these “walk aways” might stay if the economics were a little less negative.
Is this a good thing? Should someone receive a financial incentive to do the “right thing”? We don’t want to get into an ethical discussion here. That is something that must be decided on an individual basis according to that individual’s circumstances. It can however be a very good thing for the real estate market in general. And, of course, what helps the market helps EVERY homeowner, neighborhood, township or city, etc. Investment situation will get a boost, the general economy will be improved. Is it a magic pill? No, but it can help.
How does this effect the real estate market in general? We believe it will help the market on multiple fronts:
- It will reduce the number of foreclosures being forced upon the market.
- The value of neighboring homes can market driven rather than be dictated by foreclosures.
- The value of neighboring homes is not decreased by unkempt foreclosures.
- The value of neighborhoods increase as neighbors stay neighbors and relationships are established.
- It will increase investor confidence, bringing capital back into the market.
- Over-all the market will become driven by a balanced supply & demand once again.
All of this helps the general economy, which in turn helps the real estate market, which helps the economy, which helps…
Whether you are thinking of buying, selling, financing or re-financing, or investing in real estate someone at the McFarlane Real Estate Group can help you. Call us today at 530 315-2808, or send us an email. I personally am at your disposal at Michael@michaelmcfarlane.net.