I know it’s unusual for a foreclosure expert to stress that what we need in order to make the real estate market work properly now is a mortgage relief plan that really delivers the goods, but I will explain why I say this.
Foreclosures, as I have noted in countless articles and speeches across the country, are a balancing mechanism that is an integral part of the mechanics of our real estate system and our economy. As a percentage of home owners, foreclosures, are always going to be there because the mechanism does a number of things automatically:
1. It stops the real estate market from overheating by increasing the number of foreclosures, organically, as more houses are bought and sold and some, inevitably, will fall foul of the requirements and be unable to keep their home.
2. It releases new money into the system and the economy stopping loaned money from becoming gridlocked in a property that the owner cannot afford to keep and which is going nowhere.
3. It allows houses which have been gridlocked and are ‘dying’ to come back into the real estate market and be sold at affordable prices which to new owners pursuing the great American Dream of owning your own home.
As I mentioned before the moment this mechanism gets flooded with more foreclosures than the system is supposed to produce it stops working properly and begins to cause imbalances in the real estate market that do more harm than good to the industry as a whole.
Proposed relief plans which will supposedly freeze Adjustable Rate Mortgages (ARMs) so that those who might not be able to afford them will actually be able to do to so and will not lose their home do not go far enough.
Let’s take Corona in California, where the mortgage-relief plan being pushed by the government is supposed to help debt-laden homeowners across America. But it’s creating dashed hopes and fresh tensions in this city that mushroomed during the subprime-lending boom.
The problem is that the lending occurred in a very indiscriminate and predatory way which effectively removed many of the criteria for lending while the rescue plan that’s being proposed comes with a stringent set of criteria many of the most needy home owners will simply not be able to meet.
Nationwide, California is among the leaders in foreclosure filings this year. It notched state-record highs for default notices and homes lost to lenders in the June-to-September quarter, according to DataQuick Information Systems, a La Jolla, Calif., real-estate research firm.
The time has come to put together a mortgage relief plan that actually provides mortgage relief. Then and only then will the foreclosures we see work as the organic, balancing mechanism we know and start to provide real value in our real estate economy.
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