Michelle Millikin

Posts Tagged ‘real estate’

The main crisis facing our housing market is the fact that more than 20 percent of homeowners are upside down on their mortgage.  This causes foreclosures, prevents home owners from selling and stifles overall consumer spending.  According to CoreLogic, as of June 2011, underwater home owners owed $709 billion more on their mortgages than their homes were worth. Now add two more facts:  Banks have a massive shadow inventory of homes not yet released to the market and the push for buyer-assistance programs has fallen drastically short.

Principal reduction would essentially require the banks to reduce the amount owed on a property to be reflective of the property’s current value and adjust the interest charged to a current rate.  This would create a positive effect:  Mortgage payments would go down, families would stay within their homes, neighborhoods/communities would remain vibtrant, consumer spending would increase.  As consumer demand grew, so would construction, job creation and economic growth.

Banks should be incentivized by this idea.  They have an estimated 5-10 million in shadow inventory to protect.  If another wave of defaults comes through, this inventory will lose even more value.

This program would need to be limited to only households facing imminent foreclosure or other serious financial hardship.

I am in support of investigating this proposal further.  Many of these lending institutions contributed to this problem with their securitization schemes and yet were rescued with trillions of taxpayer-funded bailout money.  According to St. Louis Fed, the banks currently have 1.64 trillion in the Federal Reserve accounts that could be allocated to such a program.

In the  fall of 2011 many banks were exposed for a scandal commonly referred to as “Robo-signing.”  Essentially the foreclosure epidemic was causing banks to have their employees sign as many as 50-200 documents per day to meet the demands of the flood of foreclosures, not allowing enough time nor resources for the employee to verify the documents prior to signing.  Some admit to only verifying the date, nothing more.  This calls into question the legitimacy of the foreclosures on a basic level – a bank has to prove it actually has the right to foreclose – that it owns the note and accompanying mortgage.

Unfortunately for the bank, the securitization of mortgages and the changes in property-ownership documentation that accompanied such deals can make it hard for the banks to establish clean chains of title and produce original documents.

Now these banks are having a difficult time restarting the foreclosure process and the once booming market for foreclosed homes has come to a drastic slow-down as a result.  Properties coming to auction in the states hit the most hard, such as Arizona, California and Nevada, have dropped 30%.  Many investors absorbing and rejuvenating these properties have simply stopped looking.  Why?

The risk of acquiring a property which has not been properly foreclosed is a huge risk.  Simply said, a buyer may not actually own what they paid for, and are investing in the renovation of, because the seller never had the right to transfer the property in the first place.  Investors of such properties put out the cash, want a quick return and do not want to wait for the attorneys to hash out the details.

And buyers are not flooding in to negotiate short sales like before either.  The theory is that homeowners think the bank will have a tough time kicking them out in this environment so they can live free for awhile, pay off other debts and build up their nest eggs.

End result:  The banks need to promise the full review of all cases but this is slow-going, tedious and time consuming.  In the meantime, lack of buyer confidence in an already weak market leads to further distress on the market.

Yet a properly handled transaction with a trained professional Realtor can help a buyer take advantage of this market.  Call me today to learn how I can help.