Fixing the Foreclosure Crisis
A call to Inman readers
By Inman News, Friday, May 1, 2009.
These days, it is hard to find a person who has not been touched in some way by the foreclosure maelstrom that seems to feed off its own fuel as it swirls across the nation, turning homeowners into renters and leaving many homes vacant, neglected, abandoned, and in the worst cases grossly vandalized.
The very word "foreclosure" evokes powerful images -- law enforcement officials forcing out tenants and owners; lawns and landscaping overgrown and untended; stagnant for-sale signs in front of long-dormant homes; walls gouged and copper piping gutted. The emotional toll can be devastating, too: sadness, despair, hopelessness, instability, depression.
Real estate agents and brokers have been on the front lines of the foreclosure crisis -- meeting with sellers in various stages of distress, helping banks to unload their massive inventory of foreclosed properties, and working with buyers who are trying to navigate the new real estate market reality of short sales and bank-owned properties (also known as REOs).
Foreclosure data company RealtyTrac reported on April 16 that a record 803,489 U.S. homes were subjected to foreclosure filings in the first quarter of this year, up 9 percent compared to fourth-quarter 2008 and up 24 percent compared to first-quarter 2008.
During the month of May, Inman News will detail the depth of the foreclosure crisis, explore the impact of past and proposed fixes, and highlight possible new approaches and solutions.
We want to hear from you.
Share with us your personal experiences with homeowners and properties facing a foreclosure process. What are the roadblocks and helping hands you have encountered along the way? What was the most difficult transaction related to foreclosure that you handled, and why? How did you make it through?
What are your suggested fixes for the foreclosure crisis, and how can they be implemented? What mistakes has the federal government already made, what mistakes must it avoid going forward, and what did the feds get right so far in addressing the foreclosure problem?
We are offering $200 (in the form of an Amazon.com gift card) to the best guest contribution received this month, and we are also awarding free passes (for new registrations only) to the upcoming Real Estate Connect conference in San Francisco to the author of each guest contribution that we publish in full at Inman.com.
Some ground rules:
- Contributions should be 500 to 1,000 words in length -- mail them to future@inman.com.
- These contributions should not be written for marketing or promotional purposes.
- Inman News retains all copyrights for all published guest contributions.
Inman News is conducting a survey (click here to participate) about the state of bank-owned (REO) and short-sale properties. View the Inman News Editorial Calendar for information on future coverage topics.
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Submitted by Sean OToole on May 1, 2009 - 7:17am.
Do we really have a "foreclosure crisis"?
Here is some food for thought:
In California we have:
- 12 Million homes
- 9 Million with a mortgage
- 3 Million UNDERWATER in their mortgage
- 700 Thousand not making payments
- 235 Thousand in foreclosure
- 10 Thousand foreclosed on last month
Looks to me that we have a negative equity crisis that has resulted in surprisingly few foreclosures so far. Spend all the time you want talking about foreclosure, but this thing isn't getting better until we do something about the 20-25% of US households that are over indebted.
Sean O'Toole
Founder / CEO
ForeclosureRadar.com
ForeclosureTruth.com
Submitted by Jerzy (George) Szkup on May 1, 2009 - 8:10am.
George Szkup
www.DestinationTucson.biz
Fastest, most effective way to reduce number of foreclosures would be to pass "Cram Down" law - which our Senate just rejected. Vote, I believe, was 55 to 45 meaning - bipartisan - Democrats and Republicans.
Strength of this law would be not in what judges would decide but in incentive given lenders to deal with it in a responsible way.
Current rate of 46% failure within 6 months in mortgage restructuring indicates that lenders are doing very sloppy job.
Probably, half of foreclosures cannot be helped but other half amounts to a lot of households.
George in Tucson
http://www.DestinationTucson.biz
Submitted by M Hoffman on May 1, 2009 - 9:50am.
For my part, as a bankrutpcy trustee with over 20 years experience in dealing with mortgage difficulties, I couldn't agree more with DestinationTucson, that the surest and most economical way to reduce foreclosures would have been to pass the mortgage cram-down amendment. That having been said, the next-best thing would be a 180 day moratorium on new foreclosure filings. A breathing space, if you will, to allow the economic stimuli bestowed by Congress to begin re-energizing the economy. Jobs are the surest road to recovery in the real estate market. Next, the Fed needs to keep long-term mortgage interest rates as low as possible for as long as possible before inflation-fears necessitate raising them. Finally, the funds currently being used for HOPE would better be used to rehabilitate and/or maintain homes in high-foreclosure neighborhoods in an effort to maintain the value of the surrounding homes. Massachusetts currently has such a program - and it's working. Obviously, there are no quick or cheap fixes to this problem. However, it won't just go away either without a willingness to take a longer view than many in Congress have done to date.
Submitted by Matthew Ferrara on May 2, 2009 - 7:21am.
Wow - it's very scary to see people in the real estate industry advocating for the cram-down law. Apparently it's acceptable to abrogate "some" people's contracts in business, whenever they are the political scapegoats. I'm wondering if these same people would be happy if judges were willing to simply abrogate their commission contracts without recourse.
Opening the door to cram-down law will merely undercut literally centuries of well established contract law; and decades of regulation and laws regarding what it means to hold "senior secured" debt. Liens and loans will both become more risky - and lenders will look for other ways to make money in lower risk markets (or other banana republics that respect contracts better than ours). And it will chill the total economy, not just the house lending industry.
The single best way to deal with foreclosures is to let the market do what it does: Foreclose. Streamline the process of moving people out of the home, get it sold (at market rates). It's ethically the best for the homeowners, too: Moving them through foreclosure as soon as possible means they'll recover their cash-flow and financial credit rating all that much sooner. It will reduce stress in their lives. They will simply rent for a couple of years. It's not the end of the world, but it will be the end of the housing recession.
We don't need a magic solution; the market has the solution. What we need is for politicians, realtors and regulators to just get out of the way.
To see why this is the case, and most intervention to date useless, look at the facts: After six months and more than 700 applications, only ONE homeowner made it through the HOPE program. That's help? See http://www.npr.org/templates/story/story.php?storyId=103148855
Re-default rates for "modified" mortgages are incredibly high. Just search for articles that show them to be essentially ineffective.
The bottom line is this: If we look at mortgages from a purely financial perspective, most people who are in foreclosure jeopardy aren't making payments - haven't been for months in some cases. They aren't even effectively "renting" their homes. That's a violation of the property rights of the banks who own the homes. And it's also just bad finances for people who are ruining, not rebuilding their credits by moving into the rental markets.
The single best solution is the one that nobody really seems willing to try: Just let the market run its course; or better, find a way to streamline and move people through foreclosure even faster.
Turn it into a benefit: The company that comes up with a "rehabilitation service" for distressed borrowers will be a hero. Contact borrowers who will enter foreclosure no matter what; offer them services to find a rental, hire movers, talk to the banks, etc., and you'll be helping people through terribly difficult times. You will establish relationships with them during a crisis and that can be a powerful long-term asses as you stay in contact with them over the next three years until their credit is better (and they will likely have been saving compared to throwing money into unrecoverable differentials in their loans) and ready once again to buy a home.
This plan already works; it is what already happens to people (and has for decades) who find themselves in foreclosure. Nobody has died from foreclosure; it's not the end of the universe. It's simply another stage in one's financial situation that has to be dealt with honestly, openly and swiftly.
- Matthew Ferrara
www.matthewferrara.com
Submitted by Steve Hicks on May 4, 2009 - 9:29am.
Allow sellers to sell their home on a simple assumption again. Some of these repos could be avoided with this technique available. New buyers would come into the market looking for assumptions. Buyers with cash that can't qualify for a new loan. Investors that do not want to tie up their credit line or can't borrow anymore because of current lending rules. This is a win-win-win the seller sells his home, the buyer becomes a homeowner, and the lender has the mortgage brought current. Best of all this cost the taxpayer nothing! Why not try this befor trying another bailout or cramdown.