Real foreclosures that take place on the courthouse steps are a benefit to the community. They get homes occupied. They get paying people shelter.
There is enormous hostility to foreclosures. Lenders hate them, because they must write off the losses. People who stopped paying but who live in the houses rent-free hate them. They like free rental space.
“Mr. Mortgage” explains all this.
Most misunderstood facts on foreclosures…
a) Foreclosures and distressed sales INCREASE neighborhood house values and create a positive economic benefit when investors buy low, rehab and resell higher. Moreover, rehabs create jobs and the resale makes for TWO existing home sales transactions, commissions etc in a short period of time. Lastly, they make for a substantial increase in property tax revenue on rehab and final resale.
b) Foreclosures and distresses sales BENEFIT the neighborhood and local area economy when they are sold to an owner-occupant who purchased in the open market and then rehabs, maintains and occupies.
c) Foreclosures and distressed sales LOWER neighborhood house values and create little economic benefit when they are sold to professional investors at below market prices who turn around and rent them. Moreover, rental houses are generally the worst maintained in the neighborhood and decrease the values of houses in their immediate area. If you were out looking at houses to buy would you rather buy next door to a slightly rehabbed REO turned rental? Or, for a house next door to a former REO purchased by an investor then fully rehabbed and resold to an owner occupant who actively maintains the property? To this end, it is obvious that the latter — investor buys, rehabs and sells at a premium to most other houses in the neighborhood — brings up house prices in the entire neighborhood. Lastly, REO sold to investors for a deep discount then rented are a huge drag on property tax revenue.
d) Due to epidemic effective negative equity (not having enough equity to pay a Realtor and put a down payment on a new house) the repeat buyer cohort has been cut in half since 2007. They are now make up the minority of national resales. Investors and 1st time buyers ARE the real estate market. Investors and 1st timers want REO and short sales. Anything done to prevent the flow of distressed property will hurt the volume of existing home sales and all of the economic benefit that comes along with them. An REO-to-rent program will bring about record lows in monthly Existing Home Sales volume. And volume precedes price.
e) Various house price indices that measure prices with and without distressed sales that SEEM to prove REO brings down house prices are inaccurate. First you can’t compare an organic resale with an REO resale that generally needs 10% to 15% of rehab in order to get it in the condition for resale. In fact, because the two indices (with and without REO) have far less of a spread than the cost of rehab it indicates REO resales are higher priced than organic resales.
Moreover, when measuring the “organic” sales this cohort includes REO that was purchased 6 to 9 months earlier then fully remodeled and resold at top dollar. Because the investor to final buyer transaction looks like an organic sale they include it in their measure skewing higher the organic cohort. If these house price indices removed all houses associated with any type of Foreclosure in the past 36 months from their “organic” the
f) Finally, there is more than enough demand for distressed real estate by 1st timers and investors to absorb multiples of the supply presently on the market. The back-log in REO is not about demand, its more about financial institutions willingness to accept losses, can-kicking, and the lack of understanding how rehabbed REO lifts all house prices due to higher comparable sales. If banks would have been releasing REO to the market as they acquired it instead of holding onto it there would be no REO back-log.
How to fix the Foreclosure problem easily – banks sell to 3rd parties at the courthouse steps. . . .
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