The US government has a backlog of 248,000 homes because of record numbers of property owners defaulting on government-backed mortgages. That equates to one third of the estimated 800,000 repossessed residential properties. We, as taxpayers, are the largest landowners in the country.
The three government entities that administer government-backed loans are stymied about how to flip the properties. They even asked for ideas from Americans on how to get these properties sold without driving down home prices further.
During the years since the economic crisis began in 2008, the government spent billions on damage control. The effort is a two-pronged attack: assist borrowers with high-cost loans to refinance and provide help for homeowners in danger of default.
The Obama Administration pinned its hopes on the signature loan-modification program. In the end, the program was not prepared to service the demand, and the complexity of the rules kept many from qualifying. Not surprisingly, the largest numbers of repossessed homes are in those states that are having the hardest time recovering economically. In these areas, families just are not in a position to buy these properties even at rock bottom prices.
More repossessions are on the horizon as lenders and the courts clear up the “robo-signing” scandal that slowed new disclosures. The scandal involved mortgage servicing companies and banks signing foreclosure documents containing falsified information without review. Note holding entities filed foreclosure documents with forged signatures and fraudulent notarizations en masse at breakneck speed. RealtyTrac, a housing database that focuses on foreclosed properties, reported foreclosures accounted for over one fifth of the 3.65 million homes on the market at the end of July.
The Feds attempts at getting these properties back into the hands of buyers while keeping housing prices in the neighborhoods stable have met with little success. One idea they are exploring is renting out the vacant houses. However, this proposed solution cones with its own problems. It would need to establish a bureaucracy to repair, insure, and administer the whole process.
Many of these properties are abandoned. As soon as it becomes apparent the houses are vacant, they are often gutted of all salvageable materials. Then, there is the problem of squatters, criminals and rodents. The process results in a rapid slide in property values. As they go, so goes the neighborhood, with homes nearby also losing value. Not only that, maintenance costs and taxes drain money from any potential sale of the properties. As the neighborhoods’ values decline, property tax revenue drops. All over the country, cities and counties are facing budget shortfalls as their property tax base shrinks.
All of these circumstances lead up to an alternate solution. Demolish the worst of these properties. The criteria that qualify properties for demolition are location and the condition of the market and the property. Many hard hit cities like Detroit and Cleveland have an active demolition program.
There is an added benefit. Demolition puts some of the unemployed to work. Of course, this is not long-term employment, but in some of these areas where demolition occurs, there are very few jobs anyway. Even a short-term job is better than none.
One industry analyst estimates between 2009 and 2012, about 92 million US families will lose $20,300 in home value on average. This represents a loss about $1.9 trillion because of nearby foreclosures. This does not even take into account the tax losses for cities and counties across the country.
One suggestion for dealing with the foreclosures concerns providing housing for the homeless. Of course, any plan that tries to put the houses to use besides a sale comes with that worrisome need for a new bureaucratic structure. The bureaucracy’s staff might come from the ranks of the jobless. Another solution that comes to mind is a program similar to Habitat for Humanity. The government entities need to think outside of the box to turn the situation into an asset rather than a liability.