It's the Housing Market Stupid

It's been about three years now that I have been stating that until the residential housing market is stabilized and prices stop falling, the economy is NOT going to truly improve. Nonetheless, the Obama administration doesn't seem to grasp that reality and measures implemented to date to assist homeowners have been abysmal at best. As one who has assisted homeowners facing foreclosure and those seeking to sell homes through "short sales" I have witnessed first hand that the programs just plain suck and the mortgage lender staff handling such properties are beyond incompetent. The result: more and more foreclosures that can drastically drive down neighborhood prices and in turn set off another whole round of owners who are now "underwater" on their mortgages. The Washington Post looks at this ongoing fiasco. Here are some highlights:
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A new wave of distressed home sales is rippling, more quietly this time, through American cities and suburbs. Its unsettling effects are playing out here in Manassas, along Brewer Creek Place, a modest, horseshoe-shaped street lined with 98 brick townhouses. Several years after the U.S. foreclosure crisis erupted, the U-Hauls are back. The last time, banks seized nearly every fourth house on the street through foreclosure. This time, homeowners are going another route: a short sale.
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Harris and her husband, both bartenders, paid what seemed to be a bargain price, $289,000, in 2008. But they have fallen behind on their mortgage payments, in part because her husband was out of work. Now they have a $246,000 offer for the home, and the balance on their mortgage is more than that. They want to accept the offer. All they need is their bank's okay. That kind of deal is called a short sale, and it's sweeping the country. In these deals, a lender allows a troubled borrower to sell a home for less than what's owed on the mortgage.
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For lenders, short sales are less expensive than foreclosures to handle and help ensure that homes transfer in good shape. And for the wider real estate market, these sales could help shore up the floor under housing values because homeowners - unlike with foreclosures - have a vested interest in getting the best price. That's because the higher the offer, the more likely the lender will approve the sale.
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Clearing the way for a short sale has often proved cumbersome because there can be so many parties to a potential deal. Aside from lenders, transactions may also have to be green lighted by investors who own the mortgages, local tax authorities, appraisal firms, escrow companies, homeowners associations, mortgage insurance companies and subordinate lien holders.