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Wednesday, November 2, 2011

Tight Lending Rules Slowing Foreclosure Sales

The rising inventory of foreclosed homes would be reduced if lenders offered more help to families facing foreclosure, made it easier to sell the home if foreclosure is likely, and offered consumers who want to buy foreclosed homes better access to safe, affordable mortgages.

That was the message delivered today by Allan Dechert, 2011 president of the New Jersey Association of REALTORS®, who testified before the Senate Banking, Housing and Urban Affairs Subcommittee on Housing, Transportation, and Community Development regarding new ideas to address foreclosures.

Resolving the foreclosure crisis is important to all home owners, not just those in financial distress, said Dechert, who represented the NATIONAL ASSOCIATION OF REALTORS® at the hearing. “Foreclosures don’t just affect the families who lose their homes — communities, the housing market, and the economy all suffer,” he said.

“Ensuring credit availability to qualified buyers and helping more distressed home owners with loan modifications and short sales will help reduce the growing inventory of foreclosed homes and ensure that housing leads the way out of today’s economic struggles.”

Creditworthy consumers who can prove they can afford monthly mortgage payments continue to have a hard time getting fair and affordable mortgage loans. Unnecessarily tight credit restrictions are pushing down home values, which increases the number of home owners whose mortgage exceeds the value of their home and adds to the number of foreclosures, Dechert explained.

Increased fees, higher down payments, and reduced loan limits by the government-sponsored mortgage companies are also making it harder for consumers to buy a home or refinance a mortgage, he said.
NAR also wants the federal government to make lenders do more to keep struggling families in their homes through loan modifications. Helping more families remain in their homes would reduce the impact of foreclosures on local home prices.

Dechert also raised concerns about how long it takes to sell a home when a home owner owes the lender more than the home can be sold for — called a short sale. The current short sale process can be time-consuming and inefficient, and many would-be buyers end pull out of sales that could have saved a home owner from foreclosure.

“Loan modifications — and short sales for those unable to meet their mortgage obligations — help stabilize home values and neighborhoods and limit the losses incurred by lenders, the federal government, and taxpayers,” said Dechert. “More must be done to streamline short sale transactions, since many potential home buyers are simply choosing to walk away from transactions due to the length of time it takes for lenders to approve and complete these sales.”

One plan to get rid of foreclosed homes involves selling large numbers of properties owned by Fannie Mae, Freddie Mac, and FHA in bulk deals to investors. Dechert said that while bulk sales can be a quick way to get rid of a lot of foreclosed homes, selling homes at a discount would mean the three organizations would likely make less on the sales than they would selling the homes individually to consumers. Plus, homes sold at a discount can drive down the value of nearby homes, he said.


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  2. The borrower benefits from reduced margins to the underlying cost of borrowing compared to fixed or capped rate mortgage brokers