There is no denying that the foreclosure mess from across the country is a crisis. In Florida alone, the Supreme Court estimates that more than 500,000 homeowners will be faced with foreclosure in 2010. The scope and magnitude of the problem is staggering. According to Corelogic, an independent analyst of the mortgage and real estate market:
- Nearly 1/3 of all mortgages are currently underwater
- More than $3 Trillion Worth of Property at Risk of Default
- More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009.
- Negative equity and near negative equity mortgage combined account for nearly 38 percent of all residential properties with a mortgage nationwide.
- The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total property value at risk of default.
- In Florida, the aggregate value of homes that are in negative equity was $432 billion and Miami alone is $152 billion.
- The top five states’ negative equity share was 47 percent, compared to 25 percent for the remaining states. In numerical terms California (2.9 million) and Florida (2.3 million) had the largest number of negative equity mortgages, accounting for 5.2 million or 35 percent of all negative equity loans.
See summary of full report here.
Banks and Lenders Are Only Making The Crisis Worse; Here’s How You Make It Better
It is undeniable that we are in a massive economic crisis. Despite government reports of 10% unemployment, as I have reported previously, the true number is somewhere approaching 30%. Despite some slight improvement in sales, real estate remains mired in a quagmire of high inventory and few sales. It is particularly frustrating that against this backdrop, the banks and lenders have thus far been almost entirely unable to work with borrowers and negotiate practical solutions to the problem. What kind of solutions?
- Accept Reasonable Short Sale Offers….In a Reasonable Amount of Time.
- Waive The Pursuit of Deficiency Judgments Against Borrowers. (Doing So Will Speed Through a Great Many of Foreclosures.)
- Modify Mortgages So Homeowners That Want To Stay in Homes Can. (Foreclosing Will Only Bring More Inventory and Less Revenue.)
- Reduce Principal for Underwater Mortgages. (This Will Result in a Quantified and Known Loss, But Those Loans Have a Better Chance of Performing.)
The Final Point, principal reductions has been the hardest pill for the lenders to swallow, but there is growing consensus that this is required in order to move towards a recovery. An article in today’s Wall Street Journal reports that institutional investors are teaming up with community groups to encourage or force lenders to take the steps I’ve detailed above. (Full article here) At some point in time, something’s gotta give. Given the magnitude of the problem, it will take a major shakeup for something good to occur, but economic and practical realities may force the issue. The economic reality..the current foreclosure problem is costing more money in the long run. The practical reality…the current system isn’t working.