Highlights and [bracketed comments] added

WASHINGTON — The nation's teetering economy has Uncle Sam playing a growing role in neighborhoods across the country — as a homeowner.

The combination of a deep recession and a foundering housing market has left the government with more than 50,000 houses on its hands — enough homes to fill a city the size of Riverside, Calif., or Miami. Now federal records show it's struggling to unload the houses and facing billions of dollars in losses.

[HOT: Notice the large number in Austin, Dallas, Houston and San Antonio.]

"Everybody's in this market together," says Bill Apgar, a senior adviser to Housing Secretary Shaun Donovan. "Obviously, this is not the best time to be a home seller." 

In many ways, the government's situation parallels what thousands of other homeowners are confronting: The houses it owns are harder to sell, they typically sit empty longer, and in many cases, their values cratered as the real estate market collapsed.

Since 2007, the Department of Housing and Urban Development has acquired at least 110,000 foreclosed houses, its records show, spending about $12.2 billion to reimburse lenders after the owners defaulted on government-backed loans. So far, HUD has been able to recover only about $5.5 billion by reselling them. It has about 38,000 homes still for sale. [That's just $0.45 on the dollar.]

The government's houses are divided among a handful of agencies. Most came into federal hands when borrowers defaulted on government-backed mortgages; in some cases, the government foreclosed on loans it wrote, or took over foreclosed properties from private lenders. The list doesn't include homes repossessed by federally chartered mortgage giants Fannie Mae and Freddie Mac.

Those homes account for only a fraction of all the homes that have been seized by lenders as the foreclosure crisis worsened — about 1.2 million nationwide in 2007 and 2008, according to the listing firm RealtyTrac. But at a time when the government is spending billions of dollars to rescue banks swamped by foreclosures, they create their own challenges.

"Every day a house is on the market, you have to pay to maintain it, to keep it secure, to cut the grass, and it's another day of wear and tear," says Mark Bologna, director of the Veterans Affairs Department's Loan Guaranty Service. He said the agency will almost certainly take over far more houses this year than it has in recent years.

The exact scale of the government's increased homeownership isn't clear, in part because Washington hasn't precisely tracked the number of homes it has for sale at any given moment. But the change is substantial: The number of homes HUD owns, for example, is up about 40% since 2004. The number owned by the U.S. Department of Agriculture has more than doubled over the past two years, to just over 1,000.

That trend is "of increasing concern," says Jay Fletcher, a spokesman for the U.S. Department of Agriculture. "If the numbers were to double or triple again, that would be a problem," he says.

Both HUD and the VA are trying to speed up sales to cut the number of homes they own. But with prices falling, every sale also means deeper losses. HUD lost 39 cents on the dollar for every home it resold last year, and the VA lost 13 cents. This year's recovery rates are even worse. And the figures don't include the millions of dollars in management fees the government has paid to maintain and sell those homes.

Apgar and Bologna say the losses aren't steep enough to threaten the solvency of federal loan guarantees, in part because the government also is collecting far more in fees as it stakes out a dramatically increased role in the housing market. And they note that the government has faced such challenges before, particularly in the late 1980s, when another real estate downturn prompted a spike in foreclosures.

The federally owned homes are concentrated in struggling areas such as Detroit. In some neighborhoods there, HUD records show the agency owns four or more houses on the same block. They are among a thicket of foreclosed homes so dense that "on some streets, every third house is boarded up," says Dearborn, Mich., real estate agent Mike Shannon.

By Rick Wilking, Reuters, 05/14/2009

WASHINGTON — The Obama administration is throwing a new lifeline to homeowners facing foreclosure who are ineligible for its current aid programs. The enhancements announced Thursday include:

• Foreclosure alternatives. Homeowners unable to qualify for a modification to their mortgage will see a more streamlined process for pursuing short sales and deeds-in-lieu-of-foreclosures, which transfer a home back to the lender. The goal is to help homeowners avoid a foreclosure that could severely lower their credit score.

A short sale is when a home is sold for less than the balance of the mortgage, but lenders consider the debt paid off.

• Protections against falling home prices. New incentives will be offered to help spur loan modifications in areas where home prices have fallen the most and lenders fear that they'll keep falling. The incentives are designed to partly offset investor losses on the mortgages, and encourage loan modifications instead of foreclosures. A total of $10 billion in incentives could be paid to lenders, mortgage servicers and investors to modify loans.

Since the housing rescue plan started in March, the government has extended more than 55,000 loan modifications to qualifying borrowers.

The Obama administration has said it expects to help up to 9 million homeowners.

But the complexity of the program has made for a slow start and foreclosures have risen as moratoriums expired. The number of households facing foreclosure rose 32% in April from April last year, RealtyTrac says.

"It's been slow. The foreclosure problem is not going away," says Mark Zandi at Moody's Economy.com. "But I'm hopeful that there will be more modifications taking off this summer and fall. If not, home prices will slide away."

Some homeowners say they have felt shut out from the Obama plan.

Cara Cea, 38, of Pleasantville, N.Y., has a 7.5% conventional loan, but doesn't qualify for a loan modification under the government's aid rules. Making the payments has been a challenge.

"We haven't been late, but we don't have any discretionary income," says Cea. "I've tried to refinance and even tried to contact a company that can help you get your loan modified. But it's sad. We don't qualify.

Brad Heath, USA Today, 05/15/2009

Source: http://www.usatoday.com/money/economy/housing/2009-05-14-govtown_N.htm?csp=usat.me  

 ↑ Back to Top