By DAVID REAULT
Editor’s note: In this guest perspective, a broker-owner in Michigan grapples with the foreclosure problem and possible solutions. Inman News wants to hear from you about personal experiences working with distressed properties and opportunities to remedy this foreclosure mess. Click here for details on how to participate.
Michigan has been in the heart of the foreclosure crisis for some time now. It’s unbelievable the way our market has changed, and it’s probably even more unbelievable the way it is being handled.
I could write a long story detailing a lot of things that need to be done and many of the big disconnects where different layers of bureaucracy don’t communicate and cause the problems to magnify. There are only two that I’d like to point out now:
First off, the federal government’s one-size-fits-all approach to the problem won’t work. In markets like ours where we have seen such great drops in the value of homes, many of the steps just create more bad loans. By tightening up the credit requirements for mortgage financing, they create less demand for housing, which in turn drops the price of housing.
Now that the values have dropped further, those good loans have now become bad loans. Those people who the government is targeting with loan workouts — well, when they are $50,000 or $100,000 or more underwater they don’t want to work it out.
They don’t want to be paying for 20 years on this debt when they can just walk away. They would rather let someone else pay. They do what is in their own best interest. Not all of them paid too much for their home, but many are people who have bought cars, paid off charge cards and gone on vacation with their equity. With all their toys and lifestyle still intact, it’s easier and cheaper to just let all of the debt go. They don’t want to work out a payment plan.
In order for foreclosures to stop in markets like ours, it’s going to take incentives and an easing of financing to create demand for housing and stabilize values.
Secondly, I don’t think the asset managers get a true view of the market. The bank’s listing agents and the asset managers are determining the structure and requirements of the sales contracts. Those listing agents aren’t out working to sell homes to buyers in this market. They don’t care what the buyers think — they only care what their asset managers think of them. …CONTINUED
The only feedback the asset managers get is from their listing agents, agents who aren’t working with buyers so they don’t get a good understanding of how their negotiating affects sales and pricing.
There is more and focus on trying to retain deposits and write contracts with stringent financing and inspection clauses that greatly increase the risk for buyers. As more homes are forced to sell at wholesale prices and with more risk put on buyers, prices will drop and foreclosures will rise.
The asset managers and listing agents beholden to them are seemingly experts in real estate law who seem to interpret the contracts in their favor only, making it increasingly difficult to have a smooth transaction.
I think that every asset manager should secretly try to purchase one of their own listings, especially a hot one, from their listing agent to see what it’s really like to try to purchase a home in this market. Better yet, they should check the home before anyone goes in to see how their asset is treated and whether the appliances and other items are stripped and sold by agents and vendors or whether they stay to help the sale.
The foreclosure homes need to be marketed so they have the most appeal to the retail purchaser, and so the retail purchaser feels comfortable with the process. The retail purchaser is the key to keeping the values as high as possible, so as to not cause more foreclosures because of the loss of value.
I think the foreclosure problem started as a problem with people in financial distress, but now the loss in values is causing the financial distress.
Stabilization of values is the key to solving the problem. That helps everyone. The foreclosure crisis won’t stop until values stabilize, and it’s going to take aid to distressed individuals and other incentives to increase demand and owner-occupant purchases before that will happen.
David Reault is broker-owner for Century 21 Row in Livonia, Mich.
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