I know there is a lot being written and said about the ongoing review by 50 state attorney generals regarding the foreclosure procedures of some major lenders in the United States. I wanted to weigh in on this issue.
I first want to explain that losing a home is a horrible, horrible thing and we all feel terribly for those who can no longer afford their homes. Whether it occurred due to lax lending standards, unforeseen hikes in adjustable mortgage rates, inability to refinance, job loss or some other catastrophic situation, our hearts go out to those who have been foreclosed upon.
With that said, I do believe the lending institutions have a huge responsibility to follow all applicable federal and state laws throughout the foreclosure process. Bank of America, GMAC Mortgage and others have halted foreclosure activity – including the sales of their bank-owned properties – to ensure that their processes are indeed being handled properly and according to the law. By most accounts those who are in the foreclosure process remain unable to afford their home and will ultimately and unfortunately still be foreclosed upon. From what we have seen, these large lenders expect their reviews to take no longer than a few weeks.
I do hope that is the case. As I have said in just about every interview I have done, we need to flush these foreclosed properties through the system as quickly as possible for the benefit of the housing market and the economy as a whole. The good news is that because these foreclosed homes usually sell for about 25-to-30 percent lower than “traditional” homes according to the National Association of Realtors, we have seen first-time homebuyers and investors purchase them very quickly. This will likely continue once the freeze is ended. But remember that each time one of these homes is sold, it obviously lowers the average sales price of homes in the area. This average does have an impact on all re-sales where foreclosed properties make up a sizeable amount of the homes available for sale. These communities will likely not see their average sales price rise until the glut of foreclosed homes are absorbed.
While the states must take action to ensure that foreclosures are being handled properly, I believe a prompt resolution is of the utmost importance for all involved – and especially for the economy.