More Dire Housing News - Especially for Hampton Roads

For the last three and one half years or more, I have argued that until the residential housing market stabilizes, there will be no improvement in the overall economy and the middle class will continue to become increasingly financially strapped. Government efforts to help home owners to date have been largely ineffectual and the ongoing wave of foreclosures is driving home values lower and lower. As Westlaw News is reporting U.S. Sen. Jeff Merkley seems to get the message and he is pushing for reforms to stem the foreclosure tidal wave and the attendant decimation of home values in some cities and regions. Part of his solution would be to add "cram down" relief in bankruptcy cases which would force lenders to accept lesser payoffs and/or to rusticate loans. The reality is that other than investors with money who are reaping incredible deals, everyone loses in a foreclosure, but most particularly homeowners losing their homes and their surrounding neighbors who find themselves with ruinous "comparables" when they go to sell or refinance in the form of nearby foreclosed homes. Here are highlights on Merkley's proposal:
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U.S. Sen. Jeff Merkley is urging President Obama to pay greater attention to the nation's foreclosure crisis and is pushing a revived proposal that would allow bankruptcy judges to modify the terms of first mortgages on primary homes.
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Key Democrats have sought unsuccessfully for more than three years to give bankruptcy judges the power to reduce the principal balances on such loans, a process known as “cramdown,” as a way to stem the tide of mortgage foreclosures.
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In a letter to the president, Merkley, an Oregon Democrat, said that despite the administration’s efforts, the country’s housing market continues to struggle.
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“[F]oreclosure filings continue at a pace of over 300,000 per month, devastating families across our nation,” Merkley wrote. He focused on the shortcomings of the Obama administration’s Home Affordable Modification Program, which was designed to help mortgage borrowers who meet certain eligibility criteria avoid foreclosure by obtaining loan modifications from participating servicers.
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“The goal of HAMP was to prevent 3 to 4 million foreclosures, but to date fewer than 600,000 homeowners have been approved for permanent loan modification,” Merkley wrote.
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In his letter, the senator outlines a six-point proposal to alleviate the foreclosure crisis. He fleshed out the plan in a document available on his website.
A key component of the plan is a “lifeline bankruptcy option,” which is essentially the same as “cramdown,” a process under which bankruptcy judges would be allowed to modify the terms of mortgages on primary residences.
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Another component of the plan is the establishment of a “national short refinance program” that would enable homeowners facing foreclosure to refinance their mortgages based on current interest rates and home values. This is designed to help homeowners who have steady income but who owe more on their mortgages than their properties are worth.
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Meanwhile predictions for property value drops in Hampton Roads, if accurate, will leave large numbers of homeowners "underwater" on their loans and often with no incentive to not simply walk away. Obviously, without relief, the downward spiral will then continue anew. Here are highlights from the Virginian Pilot:
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The slide in local home prices doesn't appear to be over. A local economist suggested that home prices in Hampton Roads will fall 3 to 5 percent this year. A local real estate executive suggested that home prices will fall 10 to 15 percent.
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Now, a new national forecast has suggested that the region's home prices will fall about 13 percent this year - more than in any other major metro area in the country.
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Clear Capital's conclusions are similar to those drawn by Van Rose, president of the new homes division of Rose & Womble Realty Co. In a column in the Tidewater Builders Association's magazine, Rose said he expects a 10 to 15 percent decline in prices for existing homes this year. "There is nothing to help stop the 7 million foreclosures in the pipeline, which means values will continue to be hard to hold," Rose said of the national foreclosure problem.
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"Prices have been steadily declining since mid-2007, with prices now 24 percent below the market peak," Villacorta said.

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President Obama, are you paying any attention to this ongoing disaster?