I believe that the housing crisis is acting as a ball and chain on the general economy. An alarming 25% of the homeowners in the united states owe more on their mortgages than their homes are worth. America has way too many borrowers losing their homes to short sales that take months to complete and foreclosures that in some cases take years.
Some experts estimate that we have between four and five million distressed properties flooding the market in the next couple of years. The incoming foreclosure and short sale inventory needs to be absorbed at a much quicker rate than we have seen in the past.
According to the National Association of Realtors approximately 5 million homes are sold annually in the United States. Those numbers include short sales, foreclosures and traditional sales. If 50% of those sales are distressed it would take an estimated 2-3 years to absorb those incoming properties.
Market stabilization could be expedited if the lenders would simply reduce a portion of the principal on upside down borrowers loans while marginally upside down borrowers should be able to refinance at today’s lower rates.
The borrowers that have lost their jobs and can not afford their homes must have the arms length transaction restriction lifted. Friends, relatives and business associates should be free to purchase the property through a short sale transaction.
One of my mentors once said “If you always do what you always done you’ll always get what you always got.”
If we continue to handle the mortgage crisis in the same way that we have been we will continue to see abandoned homes, blighted neighborhoods and declining values. There’s an estimated 10 million vacant homes in America today. Many of those homes will end up being bull dozed by lenders that don’t want the liability.
Home values will continue to decline. The equity in residential real estate in 2006 was estimated to be 12.8 trillion dollars. Today’s estimate is 6 trillion dollars. Zillow estimates a $700 billion loss of equity in 2012.
Loan modification schemes and other fraudulent practices will persist. The cost of policing and prosecuting these scammers will only increase.
We can’t afford to let this drag on. Until all of the short sales and foreclosures are absorbed the economic crisis will drag on and on.
A wise man once said, America always does what’s right, after it’s tried everything else.
Hi Sue,
I could not agree with you more on this subject. I have been on the lending side for over 20 yrs and have never seen anything like this. You mention market stabilization could be expedited if lenders would simply reduce a portion of the principal on upside down loans and I have been saying the same thing for awhile now. You know, there is the program called FHA Write Down but do not hear of ANY lender offering this program. Why? It just doesnt make sense. A lender is willing to do essentially the same thing by allowing current owner to do a short sell and sell to another person. What about when rates start to go up? People in Neg Am loans (Pay option loans) and with low home equity rates will start to feel the pinch and there will be a whole other market adjustment. For other people like my husband and I who put 20% down on our home in Roseville, I now estimate to be around 115% LTV. We got a 5/1 IO ARM because my husband and I had a plan to move in 5yrs so this was a great program for us and being at 80%LTV, if we ended up not moving then could easily refinance. So since our loan was an Interest Only loan, it did not get sold to FannieMae or FreddieMac so we can not refinance out of our ARM. What about the 45% of people who are in the same position who have no equity, in an ARM loan and can not refinance because their loan is not held by FannieMae or FreddieMac? I was wondering if you know of any alternatives? We have never been late on our mortgage and have a rate of 2.75% thanks to the 12 MO Treasury Avg being so low, but I know it wont last forever. So to sum it up, we are 750 fico borrowers, who make over $100,000 a year with an adjustable rate and no equity, praying that the market stays in this slump so we can live in our home. Sad isnt it?
Thanks for your comments, Kimberly. It seems that with the virtual chaos we see in lending that the most important concept for a consumer to embrace is “caveat emptor”. Staying informed is now not only important but more possible than ever with the Internet’s help. If I can ever be of help, please give me a call.