Can REOs Help The Market Recover?
According to Housing Wire’s publisher Paul Jackson, Real Estate Owned properties or REOs may hold the key to the recovery of the devastated real estate market. Jackson analyzes that because of the shortcomings of the HAFA (Home Affordable Foreclosure Alternatives) program and second liens making short sales difficult, REOs are the only way the market can return to normal.
The report cites Laurie Goodman at Amherst Securities, who reports that 51% of mortgages also have a second one associated with them. There are bbout $1.053trn in second liens which are still unpaid to this day. Second mortgages make it difficult to achieve a short sale on most properties. Also, there have been reports that many lenders of second liens have been extorting money from sellers and their agents, in order to approve short sales. While bribes may make it easier to complete a short sale, it also remains illegal.
Jackson also determines that HAFA is basically the same as the Home Affordable Modification Program (HAMP), which has yet to see marginal successes. Since it is an extension of the same program, a homeowner must be qualified for HAMP to be eligible for HAFA and the terms still remain the same. Out of the 1 million homeowners who have applied for HAMP, only 168,000 have successfully joined the program. Jackson alleges some of these homeowners may have defaulted again. More often than not, for the other 800,000 or so people who have yet to be approved, the problem lies with incomplete requirements and paperwork. It seems that the homeowners themselves cannot submit the proper requirementts themselves, despite the amount of manpower the agency is dedicating to the program. JP Morgan says they try everything to get the homeowners to respond to their inquiries, averaging “36 calls, 15 letters, and 2 door-knocks” before they cancel an application.
Despite the best intentions of the program, Jackson says HAFA won’t “kick short sales into high gear.” Citing JP Morgan, it is likely that REO volumes will likely increase again this year, returning to 2008 levels. With inventory so high, it is expected that REO will make up a bulk of home sales, up until at least 2012, thus, as the author concludes, “recovery in housing is spelled R-E-O. Anything else is wasting time until we get there.”
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