Fixing the Housing Market

The Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to attack a problem that has defied all solutions.

Roughly five million households are behind on their mortgages and in risk of foreclosure.  Consumer advocates, economists and even some banking industry representatives say much more needs to be done, and the  question is “What?”

The big concern is that if more foreclosures continue coming on the market, we could continue to see home values falling into a spiral, an issue that we’ve had for awhile in the San Diego real estate market. 

To combat the issues at hand, they are looking to streamline the short sale  process.  Here is an example of a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.  How can we fix the housing market if this is what buyers, sellers, and realtors are up against?

Under the new program, the servicing bank will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property and pulls down the value of the homes around it, including yours.

Under the new federal program, a lender will use real estate agents to determine the value of a home and the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Thoughts?  I hope that someone can regulate the short sale process, right now there is no real, coeherent system in place.