According to Radar Logic, the federal government is currently holding about 46 percent of the entire body of REO properties in the country[1]. This includes properties held by Fannie Mae, Freddie Mac, HUD and VA loans. The company also predicts that due to a glut of “non-performing” homes that are not yet in foreclosure but clearly headed that way, the stake that the federal government has in the housing market is only going to go up for a predicted total of 3.1 million homes ultimately in the federal government’s possession.
While this massive property backlog is of concern no matter how you view our current administration or government in general, it is particularly disconcerting since these homes are marketed and maintained through the use of taxpayer dollars. The same analytics company predicts that the book value of the homes in question could reach $614 billion, which is particularly troubling when you factor in that the government, just like most other sellers today, will end up selling REO inventory at a loss. Factor in the average discount today (40% below book price) and that is a loss of $246 billion before you even factor in the properties that are discounted before they reach foreclosure status via short sales.
It seems like these massive property holdings could hold the key to the survival or the downfall of the housing market. What do you think the government should do with this plethora of distressed property?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.dsnews.com/articles/government-agencies-hold-46-of-reo-inventoryand-more-is-coming-2010-06-28
Sell to me for 50 cent of the $ and I’ll resell them for 65 cent on the $. Win-Win. Housing values get repriced where they are supposed to be. The houses become performing assets again but get the Feds out of the picture!
Government should not have allowed properties to go into foreclosure, but rather modified all loans to keep people in their homes and then re-adjust them down the road. There would have been more stability in the market. Instead, we have vacant homes being ruined. More money will be required to re-sell them.
Government’s guidelines have been changing since the beginning of this ridiculous market. This has just been a smokescreen for more than two years by the government to create their own agenda. They continue to succeed in their plan to bring us down. Where are the insiders that know exactly what’s happening? Americans are being taken for a horrible ride…loosing everything they’ve ever worked for because of an inexperienced, incompetent president who is in office.
The government needs to dump these properties to anyone willing to buy them and do it cheap. As long as the housing market is being artificially held up, yes it seems like that is not happening with the lower/falling prices, we are going to be in a housing slump. Each time the mini-bubble happens because of tax credits, it just delays what needs to happen, prices resetting!
If they would get rid of these houses and go out of business, we would have a sharp drop in prices and then the values would be able to start rising in a more orderly manner, allowing people to have once again a stable housing market.
Yes, it will most likely take a decade or two for market values to regain to the artificially high values of the last few years. However, this is okay as the values were not real and the few people trying to force them back to the imaginary values at the top of the bubble are only continuing to hold the market hostage for their own gain.
The Fannie, Freddie, HUD, and VA are the real culprits behind the housing crash, without their encouragement prices would have never achieved the artificial highs of the last decade. Getting rid of them is the only way we are going to have a stable housing market. If you have no one to buy poor loans, the poor loans would not be made. If you do not have agencies insisting poor loans be made, those loans will not be made. It is all about cause and effect, they are the cause, the housing crash is the effect.
Remember a jobless recovery is not a recovery it is simply moving things around for the press to make an administration look good, history is full of this behavior. Eventually momentum takes over and the economy really crashes and all spending stops because there is no money to spend. These homes will come onto the market somehow, it would be nice if it was a controlled manner but that is not going to happen.
As long as the motto in Washington is “SPEND BABY SPEND!”, we are in deep deep trouble!
Therefore, it is horrible all of these homes are held by government agencies, they have no plan of what to do with them, they may soon have no funds to handle them, and we are being taxed to death kind of maintaining them.
Much of that inventory is dilapated and should be torn down, like they’re doing in Detroit.
But as always, the free market wins. Smart investors would find a way to profit by offering a needed product to the world. For example, an investment group might turn some of that inventory into much needed senior housing. Or affordable housing.
The government can’t control the free market, as much as it tries. Foreclosures have not improved in spite of government intervention.
Only the free market can improve the market. I say, get the government out and let investors pick up the pieces and create something great.
The comment about much of the inventory being dilapidated like in Detroit just is not true, at least not in the West. Here in Arizona, much of the housing is only a few years old. I would say most of it is not in poor shape overall. The same can be said about most of the housing in California, Oregon, Washington, Colorado, Utah and I am sure others.
In addition, Detroit is not doing any one any favors with the graft accompanying the tear down program they have implemented. Much of what they are tearing down is property they are stealing from the owners, giving the contracts to their cronies and then the property to their pet far left causes. The left is the most culpable in this 100 year odyssey, it is time to cut them out of the picture and use common sense instead of the insanity of Progressivism.
In Florida, once nice but now distressed, abandoned homes fill with mold and must be unloaded.
Unfortunately, shadow inventory piles up in and around Sarasota, preventing it from adding to the burgeoning 46% held by government.
As Chris mentioned, government programs have been a horrible band-aid creating a more stressed market. Without jobs, housing market will not recover regardless of tax gifts.
Further, debt owners need to pull their heads out and open up:
1. Principal Reductions – Stop screwing around and write down the principal and reduce THEIR own losses.
2. STOP forcing borrowers to default before considering short sale. I can’t tell you the number of borrowers with documented hardship forced to default before Bank of America for instance will consider short sale. I’m not asking debt owners (i.e. BANKS) to regard borrowers. I’m shocked BANKS don’t see the benefit to them to approve short sales before default.
I am 100% certain about one thing: LOGIC will not prevail….
Mike the Sarasota Real Estate guy
Keep the faith, my Internet friend; You are a first-class writer and deserve to be heard.