REO vs. Economic and Housing recovery in the US

Back in 2006, I was having discussions with a number of brokers about the the impending foreclosure wave that was on it's way, and many scoffed at the time saying I was a "negative nancy" when I predicted that withing a couple of years, at least 2/3 of all real estate sales would involve distressed (REO and Short Sale) properties.

Well as of mid 2009, that came to pass. Let take a look at the next two to three years.

Problem: Due to six years of inappropriate mortgage approvals, millions of home buyers bought WAY more than they could afford, which in turn drove up home prices in double digit annual increases. This can not continue if some 20 to 30 million jobs have been down sized and outsourced off shore. Buyers can't buy, and homeowners can't make monthly payment with no jobs. So in 2006, lenders realizing they had a HUGE problem, tighten the lending requirements back to where they really should have stayed to begin with, and suddenly, no more 125%, "0" down below market rate refi's. Homeowners suddenly had to make the newly adjusted payments and trouble began. In an effort to "SOLVE" the problem, the government suggested that the banks as a gesture of goodwill, conduct a "Holiday moratorium" for the sake of the poor American people starting in November of 2008 under the guise that foreclosures would resume come January. This did not happen. Meanwhile, back at the ranch, the banks were negotiating with the folks on Capitol Hill to secure a change in accounting rules which would allow them to use a "mark to market" system to lessen the impact of the foreclosure losses on their bottom line, which in turn would save their butts with the not so friendly people on Wall Street. So the moratoriums were extended first to Feb, them March and onward until the stream of REO inventory literally dried up. Home values plummeted, and all the folks who had refied or bought a home in the past six years were suddenly upside down on their mortgage. Short sales, long hidden from day to day view, began to arise and with the onslaught of continued job loses, REO's began to build.

Solution: Some two years later, despite the misguided efforts of those Capitol Hill with $800 billion bail outs, $8,000 tax credits for new home buyers, HAMP, HAFA and TARP. The real problem stems all the way back to JOBS. Fix the job situation and people can BUY houses, and home owner can MAKE their house payments. Those folks on Capitol Hill should have used the $800 billion dollars to create jobs, and offer $8,000 tax credit to business for each new permanent full time employee. Because everyone knows, you can get a mortgage without a job. Furthermore, if you want to speed up the economic recovery, you need to speed up the foreclosure proces to flush as many as possible out of the system.

What? Speed them up you say? Why that will further drive prices down.

The answer is 100% Correct. Prices are still 20 to 30% over valued from where they should be when looking a 100 year graph. Dump the houses fast. Get values in line with norm adn see what happens. Having sold houses for 20 years now, and having owned a few personally, the first thing I do when ai buy a new house is fix it up. I buy and install, new kitchens, bathrooms, paint, carpet, furniture, light fixtures, up grade plumbing, furnaces, air conditioners, etc. And the funny thing is, is that ALL of those items are made buy Americans in manufacturing jobs. So in essence, if we speed up the foreclosures, we actually put more Americans back to work? Yes, not only do we increase the number of manufacturing jobs, but also restart the local contractor trades, ost of whom are suffering since most home owners stopped updating their homes several years ago. Contractors pull permits, permit fees help fund municipalities, who in turn can hire more employees. All these newly hired people now can spend money and pay taxes, both of which, in turn, further assist the economic recovery. The longer the moratoriums continue, the longer (and I mean decades) until the recovery occurs.