Edward Pinto, a former chief credit officer at Fannie Mae and mortgage industry consultant, has written an excellent editorial in the Wall Street Journal.
Please go and read this analysis on how the governmental loan modification programs can start to work.
What I want to share with you today was the three types of foreclosures that are clogging the system. The Dudley Do Rights seem to see only those that are trying to repay their mortgages. But in reality there are 2 other groups that are clogging the system.
Here is Pinto’s perspective:
There are three types of delinquent borrowers. The first consists of vacant homes with loans often taken out by scammers or investors. These need to be identified quickly and, when necessary, foreclosed on. The second group consists of borrowers who can’t or won’t pay their mortgages. These borrowers need to be given incentives (either a small amount of cash or the ability to conduct a short sale) to vacate their homes. Many foreclosed homes in these two groups will be scooped up by bargain hunters and either fixed up or rented out, while others will be bulldozed.
The third group consists of homes that can be saved because the borrower has a demonstrated ability and willingness to pay. We can best help this group if we stop clogging the system with unqualified borrowers from groups one and two.
Forty percent of the loans that fall into the third group are either owned or guaranteed by government agencies such as Fannie, Freddie and the FHA. Treasury should focus on saving the homes of these borrowers by modifying their loans, while foreclosing on those in group one and encouraging those in group two to voluntarily move on with their lives. via the WSJ
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This is a good article that just scratches the surface of what is going on. There are many people in their homes who bought between 2004-2006 that actually want to stay in their homes. Here is the issue. There are so many homeowners that are upsidedown and in catagory 2 from the article who have not made a mortgage payment for a long time. They share this fact with everyone that they know. It's even worse when the consesus is that if you want to get the bank's attention for a loan mod or short sale you must stop making mortgage payments. So, in addition to the financial qualifications of each of the 3 groups, there is a phycological issue to resolve. I'm sure that it will get worked through but I do believe that it will be a few years in the works.
I list foreclosures. About 30% of them are vacant when I do the occ check. I've been saying this for at least a year. Send the agent who will inevitably be assigned the property, or the property preservation specialist out immediately. If it's vacant, list it. It's that simple. I could write a book dedicated to the ways that this whole mess has been mishandled.
Send the homeowner a REFINANCE OFFER via certified mail. Most people will stay in thier homes if they can afford them.
Forclosures flood the market excess inventory and wildly fluctuating values resulting in a prolonged recovery."Wait and see" sets in and it can last for a decade. We experienced this in our market in the 80s and 90s with the savings and loan crisis…It is important to remember that the bottom of the market should not be viewed as how low will the prices go but when will they start to rise again. That happens when excess inventory is obsorbed.