Loan modifications, short sales, and principal reductions have been godsends for some homeowners and lenders, but collectively have failed to pull the housing market out of a ditch. Both RealtyTrac and the Mortgage Bankers Association report a surge in foreclosure activity, with more on the way as moratoriums expire on bank actions. Also, most modified subprime loans are destined to unravel, says Fitch Ratings. So what ideas are left as the crisis deepens? One prominent California real estate investor suggests that maybe it's time lenders dust off an old one — the so-called simple assumption loan.
A quick primer: a simple assumption was a loan allowing a buyer to take over a seller's government-insured mortgage, which, until the late '80s, did not require qualification under FHA or VA guidelines. Despised by lenders, the loans were widely used in the 1970s and 1980s, until a Supreme Court ruling and an act of Congress (the Garn-St. Germain Act) permitted banks to enforce "due-on-sale" clauses and effectively slammed the door on them.