Wednesday, February 18, 2009

President Obama to focus on foreclosures

The Associated Press reports this morning:
"PHOENIX – His massive stimulus plan now signed into law, President Barack Obama is turning to attack the home foreclosure crisis at the heart of the nation's deepening economic woes."

We don't have details of his plan yet, but I've read about possible interest rate reductions and loan term extensions.  Personally, I'll take it a step further:

If his plan does not include reducing mortgage balances to current home values, the plan will not succeed.  It will actually extend the current problem well into the future.

163,824 homes closed escrow in Maricopa County between January 1, 2005 and December 31, 2006.  I would guess 95% of these homeowners currently owe more than their home is worth.  Now combine these people with those in other parts of the country - California, Nevada, Florida, just to name a few - and we're talking about a huge number of people underwater.

What happens in 2014, when a family wants to move?  Maybe they've outgrown their small 3-bedroom home, or maybe they need to be closer to family on the other side of town/country.  Either way, they're going to get a big surprise when their Realtor shows them a Sales Net Sheet and says, "You'll only need to bring $16,000 (or more?) to the closing table."

Maybe this family explores a short sale or foreclosure at that time.  Maybe they liquidate some of their 401k (if they have any left), and postpone judgement day once again, this time until retirement...

** On a tangent, the current crises is very similar to many different over-capacity crises experienced over many decades in many different industries.  The players involved in creating the overcapacity usually take enormous losses, and are eventually bested by more efficient upstart companies who can then use the now-existing capacity.  (more on this, and my ideas for fixing today's problem, in a post next week...)

Your hoping our government doesn't do more harm than good Realtor,

Chris Butterworth