Saturday, September 17, 2011

US seeking to unload foreclosed homes

Washington is so stumped about a list of 92,000 properties that it holds nationally that it’s asking investors and others to send in ideas on what to do. The Cincinnati region has more government-owned foreclosures on the list than any market in Ohio, Kentucky or Indiana. In fact, the region’s total is higher than those for 19 states, including Kentucky.The government wants to unload 677 foreclosed single-family homes in the 15-county Greater Cincinnati region that it or government-sponsored Fannie Mae and Freddie Mac now own.The 92,000 homes nationally are part of a total 250,000 foreclosures of all kinds that the government holds, apparently making it the nation’s largest owner of foreclosed properties. The 250,000 is roughly a third of foreclosed properties across the U.S.“Until we work through this mass of houses on the market under foreclosure, we’re not going to see a revival in home sales or prices of any substantial amount,” acting U.S. Secretary of Commerce Rebecca Blank said during a recent visit to Cincinnati. “People estimate everything from one to two years before we get through all of this. There is no short answer to it. I wish there was.”Because of the size of the backlog, government officials are specifically looking for ways to move homes in bulk – not to individual homeowners. Ideas include converting the homes to rental properties or offering lease-for-sale plans.“Millions of families nationwide have seen their home values impacted as their neighbors’ homes fall into foreclosure or become abandoned,” Housing and Urban Development Secretary Shaun Donovan said in a news release announcing the program in August. “At the same time, with half of all renters spending more than a third of their income on housing and a quarter spending more than half, we have to find and promote new ways to alleviate the strain on the affordable rental market.”Moving the backlog of foreclosed homes would get them off the books of the Federal Housing Administration, as well as Fannie and Freddie, the government-sponsored entities that purchase mortgages, bundle them together and then sell mortgage-backed securities to investors. The FHAFannie and Freddie became owners of the foreclosed properties as hundreds of thousands of homeowners defaulted on their mortgages during the recent housing bust.Clearing the backlog also would limit the loss to taxpayers, who already have bailed out Fannie and Freddie at a cost of $171 billion and counting with more losses expected through 2013. Although Fannie and Freddie were created by Congress, they are public companies and have been under a federal conservatorship since 2008.No information is available on the exact locations of the local houses. But a search of a government website,, listing some of its properties for sale, shows homes sprinkled across the region, with a slightly higher concentration on the west side of Cincinnati.How the government sells the homes is crucial, because putting too many of them on the market at one time could drive prices down and hurt neighboring homeowners who are still in their homes. Converting some of the homes to rental units seems likely, but that also may raise the hackles of existing homeowners and housing advocates who are watching the issue closely.South Cumminsville non-profit Working in Neighborhoods is the early stages of drafting recommendations to the government. The non-profit helps local homeowners avoid foreclosure or find alternate solutions“What worries me most is if we start selling these properties in great bulk to investors for rentals – what kind of investors are we going to get?” says Sister Barbara Busch, executive director of the group. “We already have problems with absentee landlords. There needs to be some way to screen the investors who are buying.” Careful consideration also should be given to the foreclosed properties that are in poor shape or beyond repair, she said. Properties that are in the worst shape or aren’t useable should be torn down at the expense of the government institution that owns them, Busch said. “The properties could be given to land banks or non-profits to take care of them locally,” she said. “Otherwise, you’re going to end up with some guy in New York who owns a property in Cincinnati he can’t use, and now we can’t even contact HUD if we have a problem because it’s a guy – or really a limited liability company in New York – that owns the property.” The government isn’t alone facing the problem of what to do with foreclosures. Lenders across the U.S. were holding as much as $51.3 billion in property at the end of the second quarter, according to the Federal Deposit Insurance Corp Experts say that until the backlog of foreclosed properties begins to clear out, the housing market will continue to struggle – hampering the nation’s recovery.

Written by
Mark Wert and Lisa Bernard-Kuhn