Archive for May, 2011

Under the “Saving DC Homes from Foreclosure Act” of 2010 lenders are now required to give homeowners an opportunity to participate in mediation.  The process inserts a neutral third party appointed by a mediation administrator to reach an agreement that will avoid the lender foreclosing on the buyer’s home.

As a real estate broker in the District, overseeing the sale of thousands of homes in the last several years, I’m afraid this well intended law will actually do far more harm than good for two reasons.

1. Mediation attempts simply delay the inevitable and creates more stress and anxiety for a homeowner, holding their life in suspense for years.  The process actually delays what we are trying to do – and that is help people move on with their life and rebuild their financial capability.  If a homeowner is facing foreclosure it is because they are no longer making payments on their home and they need to move on.  How did we lose sight of this fact?  Yes, many of the individual situations are heart breaking and include circumstances beyond the homeowner’s control, but that doesn’t change the fact the current housing situation is no longer feasible and pretending it somehow is (or soon will be again) helps no one. 

Many jurisdictions across the country have been trying mediation for years and an extremely small percentage are successfully mediated, and a smaller percentage of those create long term solutions.  History is clear, the most successful solution is to assist homeowners to move in to a more affordable living situation that does not include owning the home in foreclosure. 

2. The majority of homes in foreclosure are empty and the banks are now forced to locate individuals who are nearly impossible to locate before the foreclosure can be completed.  Meanwhile rats, vagrants, vandals, and mold are taking over the properties severely degrading the condition which will force well intended neighbors into an attempt to mitigate the dangerous conditions, and eventually cause lenders to sell the properties at significant discounts – further depressing the value of homes throughout the neighborhood.  Who is this helping exactly?

Marian Siegel,  executive director of Housing Counseling Services in the District said herself in a recent Washington Post article “Our biggest fear is that people’s expectations for mediation will be too high.” 

My biggest fear is we are wasting precious time and opportunity to help people move forward in their life by setting false hopes and expectations that somehow the lender is going to cut the loan amount and payment in half for the life of the loan.

Only when we truly accept the fact we must facilitate shifting people who cannot afford their homes out – and people who can afford them in – as fast as possible - can we count on a sustainable recovering in housing.

March and April sales statistics are showing a decent bump in sales volume which is excellent news for the market in most areas of the country.  We are also seeing a decrease in inventory making it extremely competitive for some classifications of properties.  Take a look at this site for Washington DC homes:  http://gcaar.com/toolkit_ektid1592.aspx  This does not hold true everywhere of course, so look at your individual market stats to see what is happening.

Has the market turned around?  There are three things to watch which will give us a better indication of where we actually are on the recovery line.

1. Foreclosure mediation initiatives.  Currently many banks are forcing parties to mediate before foreclosing and this is causing a halt in inventory for buyers who want to remodel homes – causing dramatic bidding wars and price escalations in many cases.  My personal belief is that mediation is simply delaying the inevitable and the majority of those homes will eventually hit the market.  What happens then?
2. Price decline lines.  Many markets are seeing a nice increase in activity because the prices have, and in some cases continue, to decline.  We need to see that line flatten out soon, or we could spook the new pool of buyers in the market right now.  Will that trend turn this summer?
3. Financing of condos and investor ratios.  If you own a condo and your investor ratio is more than 50% it can be incredibly difficult to sell because you need at least 20% down.  If you’re in a 1st time home buyer market, that can be difficult to find which dramatically lowers your buyer pool, pulling your values down.  The issue here are mortgage insurance companies who will not insure mortgages under these circumstances.  Will the MI companies relax their restrictions on investor ratios?

One thing is for sure, this summer will be one to watch in the story of the largest real estate correction ever.

Whenever I have a new listing I always inquire about the investor ratio, and unfortunately a recent listing of mine is coming in high.  Anything above 50% investors makes anything less than 20% down extremely difficult.  My new listings is likely geared to a 1st time home buyer – and how many 1st time home buyers do you know that have 20% to put down?  Not many…  The issue at hand is mortgage insurance.

Anything less than 20% down requires mortgage insurance and right now there are few – if any – mortgage insurance companies willing to “insurance” loans for condos with more than 50% investor owned.

If you’re a seller, understand this will impact your value and your marketing time.  What’s the impact?  Probably about 10% of the value or more, and possibly triple the marketing time.

If you’re a buyer, with at least 20% down payment, you can find a great buy!  This situation won’t last forever and so when it changes, you’ll have instant equity.