Friday, March 26, 2010

New Foreclosure Reduction Plan

The New York Times is reporting that the Obama administration is announcing a new program to reduce the number of foreclosures across America. The plan has a number of components, but the most important of them will help reduce the amount of principal owed on homes that are "underwater" to an amount more in line with the fair market value of the property. As much as this may seem unfair to homeowners who have been able to remain current on their own mortgages, cleaning up the inventory of underwater homes is essential to reviving the housing market. The theory is that the lender will lose less money by reducing the mortgage principal than by foreclosing and reselling on the open market.

This scenario was perfectly illustrated by a deed that was recorded earlier today for a Lowell condominium unit. The homeowners purchased the unit in October 2007 for $200,000, financing the purchase with a $190,000 mortgage. The lender foreclosed in December 2008, bidding $170,000 at the auction. This past year, the city of Lowell assessed the unit at $158,000. Today, the unit sold for $78,000.

Until the amounts on these types of properties get knocked down, either through principal reductions or more rapid foreclosures, real estate will remain stagnant.


Anonymous said...

In 2001, I bought stock at a starup and paid AMT of $35K the following year for what amounted to vaporware (the company went bust). In this latest bubble, I lost a ton in mutual funds. I don't see anyone giving me anything back for my losses. Nothing goes up forever. I started looking for a house in 2006 and I knew things were too expensive, so I waited. Now I don't own a house and I'm stuck bailing others out...while many of them continued to spend like drunken sailors after taking on a mortgage. I've had enough and so have many, many others. Let the chips fall where they may. Banks should take back the houses and sell them to responsible people who can take on the mortgage and who have a buffer in the bank (like all responsible people should) to withstand bad times if they encounter them. Enough is enough!

Dick said...

In some respects, I agree with your comments because the overall goal has to be to close the systemic gap between values and encumbrances. Until that happens, real estate will remain stagnant. The problem with your approach, though, is that with 20% of all mortgages underwater, a rapid cleanup of such loans through the foreclosure process will dump millions of homes onto the market at steep discounts thereby driving prices down even more and pushing more people who are now in stable situations into home-mortgage deficits. It might make us feel better to take a hard line, but it is short sighted.

Anonymous said...

Goverment loan modification programs and other govenernment programs to "help" homeowners are worthless shams on the homeowners of America that need help. The banks are in control and they continue to rape and pillage the homeowners of America. Just google
"Chase Bank Short Sale Nightmares".
Every major bank is doing the same thing you read when you google above. The banks probably help a few people here and there, but by and large they are only interested in continuing to steal money from the government and shatter the lives of people trying to save their homes. Our government and our President really are not in touch with reality.