Distressed Property Market Update

Much has been going on lately in the distressed property market. Here is the week’s news.

Regulators say lender punishment agreement is getting closer: While we have been hearing for weeks, maybe months (I lost count) about lender punishment in the robo-signing scandal and what form it will take, apparently an agreement is close. Keep in mind that a few weeks ago the Attorneys General and Federal Regulators, who were not seeing eye to eye on punishment options, parted ways. The Feds have been working with the lenders to come up with a solution.

The latest news is that the lenders will be ordered to fix foreclosure procedures and pay back homeowners who wrongly had their homes foreclosed upon (no dollar amount has been determined). Hmmm. Let’s see: lenders erroneously took your home from you and now they want to give you money to apologize. The money is nice, but the fact is these people still lost their homes! Not to mention their credit is decimated. Furthermore, who is going to foot the bill for hiring third-party companies to evaluate all foreclosures completed in 2009 and 2010? We assume the lender will do so. If they are paying these likely very high fees for review, how much will be allocated to pay the homeowners, the true victims in all this? Can banks actually survive this?

Finally, what of the Attorneys General, who did not agree to the punishments being discussed? Are they going to get together and come after these lenders, or will they sign off on whatever agreement the lenders and Feds concoct? It is all a bit confusing.

Legislation Proposed to speed lender response to short sales: On another note, there is a bipartisan effort by lawmakers to introduce a new bill that will curtain short sale timelines. The bill will mandate that a lender responds in 45 days or less to a short sale offer–either accepting, declining, or providing status on the decision. The National Association of Realtors is behind this bill, as it would help with home sales across the country. Note that this is the second time a bill such as this has been introduced, so hopefully the second time will be a charm.

Foreclosure numbers have dropped: The latest reports indicate that yes, foreclosure activity is the lowest in three years. Don’t get excited though, as RealtyTrac says that this is due to processing delays. Still, there were much lower numbers reported in the foreclosure arena. Also important to note is that reports have stated that states using non-judicial foreclosure (like California) have shown quicker movement through the foreclosure process.

Bank reposessions: These have ncreased in non-judicial foreclosure states 9% from the last quarter, making more REO (lender owned) properties available. The good news here is that if they are Fannie Mae properties and you are a buyer you could qualify for receiving money toward your closing costs…see my last post before this one. REO properties that are listed on the market tend to have lower prices and negotiating power for buyers. Also, many lenders will go in and spruce up these homes a bit (like painting, new carpet, appliances, etc.) before listing them, making the situation even better for buyers.

The bottom line is that there are changes being made in the distressed property market. Some will be for the good, some may not pan out. But the fact that the government is making strides here is important. My hope is that by continuing to focus on this enormous problem and the even bigger repercussions it has on not only housing but the economy, will eventually help both.