Last evening on WTTW's Chicago Tonight, I was asked what I thought of Sam Zell's recent comment in Crain's that a component of moving the housing market toward stability was to accelerate the foreclosure process.
(FYI, WTTW doesn't give you the questions ahead of time.) That being said, my response was that Zell is quite wrong, as is anyone else looking at this a part of the solution.
Those of us dealing with foreclosures and REOs--and the myriad of challenges that go with these sales--know that whatever philosophical bent or academic modeling brings people like Mr. Zell to the conclusion that this is sound practice also know it all fails in the real world arena.
The system is strained well beyond capacity right now from the entry point with the court system all the way to the sale of the property in the market; breaking it helps little.
In Chicago (and the overall metropolitan area) we are already adding REO inventory at a pace well in excess of the absorption rate. We hear anecdotally that there is a backlog of foreclosed property being held off market by banks and asset management companies in response to the unforeseen precipitous fall in average and median sales price in many areas.
Yes, inventory is dropping, albeit slowly. The biggest factor in the dip is the number of owners taking property off the market because they cannot sell it right now for a price they are willing to accept.
Yet many of the same banks now selling these foreclosed homes are loath to consider a purchase offer with any type of financing contingency, and they continue to accept lower cash offers on property, effectively closing the door on many buyers looking to pay fair market price for a home.
Plus, added governmental regulation created daily to deal with vacant property adds a burden of time and cost to each transaction.
The solution to clearing out the REO inventory is to prevent it (as much as possible) from entering into the system by:
1. Having people working--and providing access to lending based on rational criteria;
2. Having adequate resources directed to the implementation and support of the Obama Loan Modification program;
3. Leveling the playing field so homebuyers have an equal opportunity to buy foreclosed property with investors and speculators; and
4. Allowing for governmental policy that weighs the economic and social costs of widespread displacement of millions of American households.
Some strides have been made, but there is much left to do. The system needs a dose of common sense and more accountability in the management and disposal of REO property.
Most of all, we need to hear more from the people actually dealing with this issue and less rhetoric from folks who are not doing the heavy lifting.
To check out my appearance on WTTW's Chicago Tonight, click here.