Today’s Courier Herald Column:
With the GOP Presidential campaign having an extended stay in Florida, there were brief attempts to have the candidates weigh in on the continuing housing crisis. Florida, like Georgia, has been extremely hard hit with foreclosures since 2008 with home values continuing to decline in many local markets.
Unfortunately, most discussions on policy were quickly debased by charges and counter charges of who consulted/lobbied for Freddie Mac, and who owned stock in Fannie Mae. Gotcha campaign politics does nothing to assist those who played by the rules, are still paying their mortgage, but now have a home that is worth significantly less than what they paid for it and more importantly, what they owe on it.
The President called for refinances at market rates again during his State of the Union speech. Those who are underwater on their mortgages are unable to refinance their 7% mortgages to today’s record lows under 4% because of appraisal issues or income issues. If someone has paid their mortgage while their home has declined in value, then they are more likely to keep paying at a 4% rate than they are at almost double market rates.
The bond holders earning 7% have already received a bailout. It is well past time to pass the relief on to the homeowner who has done nothing wrong but is bearing the brunt of the cost of the housing collapse. Republicans should join the President and get this done, perhaps trumping him with a discounted refinance rate to the market. The money released back to consumers would add legs to consumer spending which has shown signs of recovery despite continued high unemployment.
One additional area where policy and regulation changes could significantly help the housing market is in the area of short sales – sales where homeowners owe more than the home is worth and the bank must either approve writing off the deficit balance at the closing or take an unsecured note for the difference from the seller. Roughly 60% of the homes in metro Atlanta are underwater, and the housing market for resales is dominated by short sales.
Banks, while having adopted policies to generally approve short sales, generally are still dragging their feet to approve them. Realtors are generally advising buyers and sellers to allow for 6 to 9 months to complete a transaction where a mortgage holder must approve the terms. Home buyers who contract to buy a short sale have actually only entered into an agreement to eventually begin negotiations with a bank. Often the bank will not come close to approving the terms that the realtor, desperate to generate an offer for the seller to avoid foreclosure, has offered to generate a contract.
The result is that the market for re-sold homes has become remarkably inefficient, with many buyers refusing to consider homes that would represent a short sale, and many realtors refusing to list them or write sales offers for them. These homes too often end up as foreclosures as a result, perpetuating the downward price spiral.
Anecdotally, I can share that I have been attempting to purchase a home for almost a year now, and have also sworn off of short sales. The first home I had under contract involved a realtor listing the home for about 30% less than what she knew the bank would accept in order to generate an offer. An endless loop of open ended updates followed, with her finally suggesting I increase my offer 50% if I wanted to close. This, despite having been promised before writing the contract that the bank had pre-approved my offer amount.
More recently, I signed a contract after being told that the bank was local, and would most likely provide a “quick” decision. After completing the paperwork, I was told not to expect an answer for at least 90 days. Two weeks later, I was told my terms were approved, but I had to close in 9 days or the bank would be foreclosing two days after the proposed closing date. My mortgage lender could not say with certainty that they could meet that time frame, and I was not willing to invest in yet another appraisal, inspection, and opportunity costs for a home that would be foreclosed on if I was unable to close in the timeframe allowed. Thus, instead of a sale in 3 weeks, the bank will have a foreclosure next week.
To help the hardest hit states, banks must be forced to accept standard processes on short sales. A standard list of documentation from the seller should be clear to avoid banks constantly asking for “one more document” to delay a decision. Banks should have 60 days maximum to approve a seller’s request once their paperwork is complete. This should include a clear net proceeds amount. Offers that are less than this amount should be approved or declined within 30 days. Once any offer is approved, a minimum of 30 days to allow for an orderly closing should be allowed.
Restoring certainty to the short sales market is essential to housing recovery in the hardest hit markets. As the Presidential campaign leaves Florida and begins to look forward to Super Tuesday, Georgians must insist on this and other housing policy positions from the candidates.