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May 19

Real Estate and Mortgage Industries Start Over

The title of this post may actually be in the news someday. Regulators poke and prod the industries trying to fix the problems but nothing much has changed. I keep hearing about the new tighter mortgage guidelines, I haven’t seen them. Underwriting guidelines are basically the same as they were when I was a kid. Oh sure, it is much more automated today, but the basic rules are no different. Credit scores, they are new right? Equifax opened in 1899, started grading credit soon after.

What about real estate? The current concept we use is quickly approaching a 400th birthday. In England back in the mid 1600′s two guys go out in a field and the seller pulls up a clump of grass and dirt and hands it to the buyer. As he passes the symbolic piece of land he says something like, “Let all ye know that I hereby convey to thee my rights to this real property and the entire estate shall henceforth belong to thee.” The other guy took the dirt and handed over a bag of gold as he recited, “I accept this estate as is, including the radon underneath and hereby give thee all of my hard earned gold.” A couple of neighbors witnessed the transfer, then everyone went to the tavern and the real estate industry was born. Nothing much changed here either.  Except in Kentucky the seller says, “and the entire estate shall henceforth belong to y’all.”

We did not originate the concept; we borrowed it from the old country. Maybe, just maybe, it is a good time to ask if there is a better way. What would happen if we threw out the old system and started over? What would it look like? How would it work? How would it be financed? Could there be a more efficient system? HAHAHAHA, ask a third grader to draw up a system, it would probably be a lot more efficient and a lot easier to understand.

I could think up a basic system over lunch. How about a monetary system based on land instead of fiat? That sounds scary, something actually backing the currency? A title system linked to the zip code system would be very efficient. Why not? Every property has a unique zip code, why not modify that system just a little to incorporate real estate titles and property taxes? Anything pertaining to a specific property would all be under one data entry. No that would probably be too efficient, there would be no need to run title or issue title insurance, bummer. Wait! That could eliminate the need for a deed also. Would never work…

Okay, what next? On the finance side we get rid of mortgages, lend money to the individual instead of using the house as collateral. Keep the loan for as long as you want and the outstanding balance would always act as a credit on the next purchase while maintaining the original terms. Additional financing for a purchase could be arranged with new terms.

Realtors would only help buyers, no sellers involved. When ever a home owner chooses to move they simply contact their realtor and turn in the title to their home to the National Inventory Treasure Chest (NITC). I am making this up so I can name it anything I want.

The Realtor would accept title on behalf of the Treasure Chest and the contributed value would be determined based on the tax value certified by an appraiser. The home owner would receive Estate Chips for their equity that could be used to purchase any home held by the NITC. Talk about liquidity! Honey, bananas are getting too cheap here, let’s move to California tomorrow where they sell for a pretty penny.

In addition to liquidity on steroids this system could eliminate the archaic closing event.  There would be no need for the parties to attend a closing, simply log in to the NITC and accept the property.  By eliminating sellers the buyers would never meet the other side.  No hassles, all disclosures posted online accessible 24/7.  Instant loan approvals, close in an hour or less.  If you move in and decide you do not like the house, no problem, just turn it back in.

No more tracking days on the market. Just pick up and go!

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