Real estate experts say more help needed
Ed Taylor, Tribune
February 18, 2009 - 5:44PM
Many Valley real estate experts gave President Barack Obama high marks Wednesday for seriously attacking the foreclosure crisis in his speech at Dobson High School in Mesa.
But many also questioned if it will be enough to reduce the number of foreclosures and stabilize the housing market.
"It's a good start, but it's not enough money to help all those who need help," said Letha Martin, owner of Platinum Financial Resources, a Queen Creek-based real estate, mortgage and loan-modification company.
She said $1 trillion in adjustable rate mortgages are scheduled to reset their interest rates in the next two years, and many of those homeowners will likely face foreclosures.
"We're going to still see a huge problem of foreclosures and property values declining," she predicted.
Karl Guntermann, a real estate professor at the W.P. Carey School of Business at Arizona State University, said Obama's proposals are "long overdue." But he also questioned if they will be enough.
"It seems like it should have an impact, but everything the government has done seems to be inadequate," he said.
To emphasize the magnitude of the problem, Guntermann said the latest data for December and January indicate that home prices in the Valley have fallen back to 2001 levels.
Jay Thompson, a Gilbert real estate broker, also expressed doubts the program will cover enough distressed and potentially distressed homeowners to bring the market out of its depression.
"They say it will help 7 (million) to 9 million homeowners, but the number of foreclosures alone will reach 10 million in a few years," he said. That doesn't include many more that are in danger of foreclosure and need rescuing, he said.
He also said the refinancing provisions of the plan, which are separate from the loan-modification incentives, won't help many distressed Arizona homeowners because their homes have lost too much value to qualify for refinancing.
Still, real estate and banking experts said it's a good sign that the Obama administration at least is wrestling with an enormous problem that is driving down the entire economy.
"My general reaction is the cavalry is coming over the hill," said R.L. Brown, a Valley real estate consultant and analyst. "The tragedy of it is the cavalry should have come over the hill a lot sooner."
Although the program won't help those who have already lost their homes to foreclosure, the 7 million to 9 million homeowners who will be helped "clearly is a significant number," he said.
Martin added that Obama has a knack for giving people hope.
"He's helping Americans feel that someone is on their side," she said.
Jill Hoogendyk, president of the Arizona Mortgage Lenders Association, said the program, most of which can be implemented by executive orders without Congressional action, will help many homeowners.
"It will take a little time to get procedures in place, but it should give lenders more incentives to become more aggressive in making loan modifications," she said.
That's particularly true if the loans are owned by Fannie Mae and Freddie Mac, the federally backed institutions that own many American home mortgages, she said.
The situation gets more complicated if the loan is controlled by private investors as part of mortgage-backed securities, she said. In those cases the servicer who manages the loan must get investor approval to make modifications, and the program does not appear to offer many incentives for investors to modify," she said.
"The servicer often is afraid to make modifications because they are afraid of investor lawsuits," she said. "What the servicer really needs is a safe harbor from litigation."
She was critical of another component of the plan, which would give bankruptcy judges the power to modify the terms of mortgages if lenders or investors don't. Such authority, sometimes called a "cram-down" approach, would require Congressional approval.
"I don't think anyone who suggests a cram-down proposal is thinking long term," she said. "In the long term, if that option is widely available it will be more expensive and harder to borrow to buy houses."
Martin believes the real solution to the housing-market problems is to convince banks to loosen up their approval of new loans. That was not part of the program outlined by Obama in Mesa, but it is being addressed by the U.S. Treasury in a plan to remove toxic assets from the banks' ledger books.
"I am constantly running across clients who want to buy homes, but I can't get them approved (for a loan)," she said. "How do you expect the market to rebound if there aren't any buyers?"
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