Stabilize home prices, stave off default
Perspective: Fixing the Foreclosure Crisis
By Inman News, Wednesday, May 6, 2009.
By DAVID REAULT
Editor's note: In this guest perspective, a broker-owner in Michigan grapples with the foreclosure problem and possible solutions. Inman News wants to hear from you about personal experiences working with distressed properties and opportunities to remedy this foreclosure mess. Click here for details on how to participate.
Michigan has been in the heart of the foreclosure crisis for some time now. It's unbelievable the way our market has changed, and it's probably even more unbelievable the way it is being handled.
I could write a long story detailing a lot of things that need to be done and many of the big disconnects where different layers of bureaucracy don't communicate and cause the problems to magnify. There are only two that I'd like to point out now:
First off, the federal government's one-size-fits-all approach to the problem won't work. In markets like ours where we have seen such great drops in the value of homes, many of the steps just create more bad loans. By tightening up the credit requirements for mortgage financing, they create less demand for housing, which in turn drops the price of housing.
Now that the values have dropped further, those good loans have now become bad loans. Those people who the government is targeting with loan workouts -- well, when they are $50,000 or $100,000 or more underwater they don't want to work it out.
They don't want to be paying for 20 years on this debt when they can just walk away. They would rather let someone else pay. They do what is in their own best interest. Not all of them paid too much for their home, but many are people who have bought cars, paid off charge cards and gone on vacation with their equity. With all their toys and lifestyle still intact, it's easier and cheaper to just let all of the debt go. They don't want to work out a payment plan.
In order for foreclosures to stop in markets like ours, it's going to take incentives and an easing of financing to create demand for housing and stabilize values.
Secondly, I don't think the asset managers get a true view of the market. The bank's listing agents and the asset managers are determining the structure and requirements of the sales contracts. Those listing agents aren't out working to sell homes to buyers in this market. They don't care what the buyers think -- they only care what their asset managers think of them. ...CONTINUED
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Submitted by Joanne Davis on May 6, 2009 - 4:46am.
Joanne Davis
Sr. Executive Associate
Lyon Real Estate
www.JDavis.GoLyon.com
916.747.1901
Great article and right-on! The government is throwing money around like water and none of it is helping the "people". The banks have sat on homes for the past 4 years, and it is time to foreclose, get these homes on the market and let the buyers have something to buy.
The Loan Servicing companies get paid whether or not an owner makes a payment or note, so no wonder why BoA bought $18B and the loan servicing of Countrywide. No wonder why the loan servicing companies wouldn't talk to the homeowner or the listing agents. Now the Asset Managers continue to make it difficult, in a majority of the cases. I guess you shocked me that there are listing agents stripping homes (as opposed to some homeowners0 - just when I think I can't be shocked. The banks and government need to get "grip" on reality.
The real estate industry (all parts of it), is a major driving force in this Country's economy: from developing land/infrastructure, commercial/retail centers, housing, which all put a lot of people to work. Yet the Feds continue to make it more difficult for the Real Estate Industry to function by making ridiculous rules under RESPA on Realtors and the real estate industry. Example: Title Companies can no longer provide many tools Realtors need/count on in order to do their work to help buyers and sellers: obtaining property profiles, mailing lables - these are/were not the problem. For a few bad title companies, developers, Realtors, etc., who really committed major fraud: prosecute them, but stop making it more difficult to get things moving.
No one talks about the sheer number of homes that have never been listed for sale, but are in trouble and headed for foreclosure. The numbers are staggering, yet the Feds and banking industry continue down the wrong path to "let the market correct itself" ... you are correct in your opinion that many people in trouble right now did not over-buy ... they are caught in a spiral.
Question: where are the Feds to "protect" the people being foreclosed on with a 2nd TD? Consumers think that a foreclosure wipes out a 2nd TD: not so fast. A number of the largest lenders are now going to go after the homeowner for the 2nd TD after the home is foreclosed upon. I believe there is a 4-yr statute of limitations - watch the banks let consumers get their credit back and then go after them.
Lastly, California has chosen to put a 90-day moratorium on banks foreclosing - one more delay that will make things worse. It is inevitable that the majority of the homes in trouble will become foreclosures; get them on the market and sold, there are plenty of buyers. When people are in pre-foreclosure they stop paying property taxes, and until the banks own it and sell it: the State and local governments lose out on re-couping this money. Since the banks have chosen tell their customers to miss 3 payments before the bank "might talk to them about some "help" - why pay the property taxes? Why not just walk away?
And how about banks demanding homeowners in trouble, while in escrow and in order to close an escrow on a short sale: demanding thousands of dollars on behalf of a Private Mortgage Insurance Company, who insured the investors on the less that 20% down portion of a loan... guess what? The banks have no right or business of demanding this money. Consumers pay the premium for insurance to cover that that portion of their loan. Where is the Government to protect those consumers from the fraudulent activity of a bank? Anyone hear about this problem? Well, it's growing.
Again, Government, get out of the way; and Banks, take your lumps and get the economy moving again.
Submitted by Margaret Summers on May 6, 2009 - 5:02am.
A very good understanding of why "the plan" isn't working. I am located in what is suppose to be one of the rapidly declining markets although I don't seem to have any problems with my production. What asset managers do no not understand is exactly what you are stating in your article. In fact, I heard through the grapevine that one of the asset listing agents was going to "shoot down my pricing in my subdivision" with a listing that was being prepared as a bank foreclosure. Now, isn't that charming. It is all just a game for those that are handling short sales and foreclosures. For me, I absolutely refuse to play along and will continue to market my listings as beautiful retail properties that most certainly have come down from 2006 levels, but that are value priced for a market (and appraiser) that can appreciate a buyer that just wants to buy a home that is fairly priced and in good condition. I have been told that we all need to be working short sales and repos - but, while everyone else seems to be following that advice I plan on doing just the opposite. Additionally, the author is correct in the statements regarding the sellers that are walking away. Those sellers are not inclined to try to sell a worthless investment. We need financing for homes that only worth HALF of what they were - for those that have been faithfully paying on their mortgages and have no intentions of defaulting, but who could really use help with a lower interest rate. Those are the people that will "shore up" our economy - not the ones that are walking away. If we don't help those people we will be faced with even greater distress in the year to come with more inventory coming on the market as those people will finally figure out that no one is going to help them.
Submitted by Elizabeth Cooper-Garcia on May 6, 2009 - 5:04am.
I have been saying the same thing since last summer. If home prices do not stabilize, foreclosures will only increase. And how will they stabilize? By allowing those responsible homeowners to refinance into lower rates REGARDLESS of who owns the loan, if they can provide proof of income or appraisal information. It can be correctly assumed that if a homeowner/borrower has been paying on time for the past 3 years, he will continue to do so. All lenders should automatically do a blanket loan modification for these borrowers to the current rates of 4.875%. You will immediately see a drop in short sales and foreclosures, as those on the brink of making a decision of walking away can breathe a sigh of relief on the payment reduction. During the past 9 months, I have seen people just decide to stop paying because they looked to refinance and were turned down because of stricter financing requirements and because their home values had dropped significantly. Despite me counseling on the reason why they should stay in their homes, they look to the negative and see that banks are being bailed out but not them.
Put simply, if banks were given a capital injection from us (the taxpayers), those same banks should give us a capital injection thru reduced interest rates. The results of these extra $100-$400 available to the borrower a month would translate into increased consumer confidence and increased demand for goods & services. This increased demand would get people working again, as sales increased in all industies.
We are in a downward spiral - I completely agree. The more homeowners are turned down for refinancing to lower their payments because of qualification issues, the more homeowners will decide to forget why they bought their home in the first place and just walk away. As more homes go to foreclosure, the more downward pressure on pricing will be, the more people will believe it's no longer worth it to keep paying their mortgages, and more foreclosures, etc.
The government's Making Home Affordable program is only for loans owned by Fannie Mae & Freddie Mac. My experience has shown that here in Miami 90% of all loans needing assistance qualify under that program. So really, what help can a borrower seek to get from the government? None.
If Mr. Obama's administration really wants to make a significant difference, force ALL banks to modify to today's rates WITHOUT BEING ASKED BY THE BORROWER. Even if it's a temporary modification for 3-5 years, it will get the economy moving again and prices will stabilize.
Submitted by Robert A. Hulme on May 6, 2009 - 6:26am.
The process is working here in Utah. Last week I helped one of my buyers make a offer on a just listed bank owned property. By the time I had put together the offer there were 6 other offers on the home. Sales are up, prices are down, but we are finally moving in the right direction.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.UtahCountyHomes.ws
www.UtahCountyRealEstate.us
Submitted by chis eliopoulos on May 6, 2009 - 6:27am.
I think that prices will continue to decline.One of the factors is, that for some reason (unknown to me) the banks are not cooperative.I do not understand the benefit for them holding on to assets that are of not use and deteriorate daily.Non of the asset managers I spoke to or presented an offer acts like has an understanding of what is going on in the market.They are arrogant and difficult to work with.I as a broker I can present my clients with much better deals than a bank foreclosure or a short sale (California).It is not my job to educate the bank it is my job to produce a buyer.The effort and time a foreclosure or a short sale requires is really not worth to get involved.We are in business to make money and our most precious commodity is our time.I have stopped wasting mine dealing with the bank.
Submitted by John Rakoci on May 6, 2009 - 8:38pm.
Working with most banks is like working with obama and his administration. So far the feds have wasted a lot of money and helped big business to the detriment of the working person with the exception of the union workers he owes big time (UAW).
Submitted by Mary McDaniel on May 8, 2009 - 4:38pm.
Cathy McDaniel
Great comments. Declining home values are a major concern across the nation. Only the real estate community professionals can slow down and even stop this process.
1. Local REO listing agents must, regardless of the potential sale price of the property make the small investments that make a big difference to the property regarding curb appeal prior to listing. Buyers should not be able to tell the difference between an REO property and a traditional for-sale property, or for that matter, even an occupied house on the street.
When buyers drive up to a distressed property, they are thinking discount.
2. We must change the mindset of the buyer regarding the "fair market list price based on the home's current condition". By educating the buyer to request maximum seller concessions in "closing cost" i.e. FHA finacing, 6%, the REO seller can pay all closing cost, buy the buyer's interest rate down, pay 6 months HOA fees, and/or pay a portion of the buyer's monthly mortgage payment for the first 2 years of ownership etc.
Also explaining to the buyer that today's home prices (in many areas) have returned back to 2000 pricing. Properties today have received 2 Broker Price Opinions and appraisal. If they discount their purchase today, it will take them longer to build equity. Show them a comparison on how $5,000 discount would affect their downpayment requirement and montly mortgage note. A few dollars.
On behalf of the REO seller, by not reducing their list price and agreeing to participate in maximum seller concessions, they receive more many money back towards their loss and better home curb appeal will cause their properties to sell much faster.
A win-win. It is all about education.