Register Real Estate Advisors

As a Realtor in the Spring and The Woodlands area, I read a lot of articles about the foreclosure crisis and short sales.  I am a Certified Distressed Property Expert, which just means I earned that designation because I took a lot of classes on distressed properties and how to help homeowners that are upside down on their mortgages.  The article below is from the Huffington Post and I thought it was intersting and wanted to share it with my readers.

More than four years into the housing crisis, and after millions of Americans have lost their homes, Federal Reserve Chairman Ben Bernanke is finally taking a stand.

Bernanke sent a Federal Reserve paper to the leaders of the House of Representatives’ Committee on Financial Services arguing that relying heavily on foreclosures to deal with mortgage borrowers that can’t meet their obligations is “costly and inefficient” for the housing market because they can lead to deteriorating homes and weigh on the property values in the surrounding community.

Instead, the paper encourages lenders to “aggressively” pursue loan modifications and for servicers to be given more incentives to seek alternatives to foreclosure.

Foreclosures “can result in ‘deadweight losses,’ or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods,” the paper said. “These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices.”

The Obama administration has already pursued policies aimed at encouraging lenders to modify loans, although to very limited success. The Home Affordable Modification Program, which Obama announced in February 2009, had helped fewer than 700,000 homeowners as of October, despite promises that the program would encourage banks to modify the loans of 3 to 4 million homeowners.

The paper mirrors findings from regional Fed banks indicating that foreclosures can be detrimental to more Americans than just those who are losing their homes. Properties that are occupied, but in foreclosure, drive down the surrounding property values twice as much as vacant properties, an October study from the Cleveland Federal Reserve found.

And with millions of foreclosed properties already in the pipeline, the foreclosure process is already taking longer than in recent memory — a situation that may only be exacerbated if lenders don’t take the Fed’s advice. The average foreclosure process now takes 674 days, almost triple the time necessary in 2007.

Another alternative to foreclosure proposed in the paper is to combine a deed-in-lieu of foreclosure — or a program where borrowers return the home to lenders without foreclosure proceedings — with a rent-back arrangement. Others have floated a similar plan, including left-leaning economist Dean Baker, that would allow defaulting borrowers to stay in their homes, but as tenants.

The Obama administration also considered a plan in August to boost falling home prices by turning thousands of government-owned foreclosure properties into rentals. If the program goes through, the spaces would likely have some takers; the U.S. apartment sector has expanded past recovery, indicating a boost in rental demand.

Kevin Price, host of Price of Business, and I discuss the relatively new phenomena of banks walking away from foreclosures and what this means to the homeowner. This aired on AM 1070 in Houston on Thursday.

Since the Texas Attorney General called for a foreclosure freeze I have been getting a lot of calls with questions about what is going to happen in our real estate market.  It was already scary with appraisal issues, a flood of distressed properties on the market, interest rates at all time lows, gold at all time highs, tax credits ending, and now this.  This is not a normal blog post for me.  It is lengthy and I hope you will hang with me because if you have anything to do with short sales or mortgage foreclosures this is all information that you need to know.

Know that Texas is not alone.  Other states are taking similar action.  Maryland’s Governor is supporting a 60 day moratorium on foreclosures there.  Delaware is reviewing pending foreclosures and in Massachusetts. The attorney general said her office is investigating “an apparent failure of major creditors to follow state foreclosure law.”

So what exactly is going on?  First, I want you to know I am getting my information from several sources – The National Assoc. of Realtors, The Texas Association of Realtors, The Associated Press, and the Real Estate Research Center at Texas A&M University.
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NEW YORK (New York Times) – April 5th will mark the beginning of a new program by the Obama administration intended to end the foreclosure crisis — one that will pay homeowners to sell their homes.
The program will allow owners to sell their homes for less than they owe and give them cash to expedite the process.
Hundreds of thousands of delinquent borrowers will be encouraged to sell their houses through short sales, in which properties are sold for less than the balance of the mortgage.
The new program will give the servicing bank $1,000, and another $1,000 may go toward a second loan, if one exists. The distressed homeowners will also receive $1,500 in relocation assistance.
Borrowers could suffer less damage to their credit ratings under the new program, and they will receive the lender’s assurance that they will not later be sued for an unpaid mortgage balance.