All agree that our real estate market is suffering. Here are three areas where I think the system is “broken” and some possible fixes:
1. It’s the foreclosures.
The real estate market is trying desperately to make a modest recovery, but it is impossible to establish any kind of pricing stability when the market is flooded with foreclosures, which undermine values and are absolutely toxic to any neighborhood in which they are located.
Possible fix: Encourage meaningful loan modifications to keep owners in their homes.
Loan modifications could allow millions to stay in their homes and make some level of monthly payments. But servicing lenders are currently unwilling to offer them because they fear their liability to the note holders will come back and bite them.
Appropriate federal legislation could allow lenders to be held harmless of liability if they engage in a good faith effort at restructuring and the loan eventually is charged off.
2. High vacancy rates push value down.
The existing inventory of vacant bank-owned homes is poisoning markets nationwide as they sit empty and deteriorate. They attract crime and vagrancy, and they decline in appeal until their value approaches zero. But financing is only available to owner-occupants for homes in excellent condition.
Possible fix: Make common-sense financing available to investors.
The Federal Deposit Insurance Corp. has so restricted banks’ ability to lend on real estate that it’s almost impossible for investors to acquire these vacant houses for rehab and to return them to market. And even if they do it with personal funds, no “take-out” refinance mortgages exist from Fannie Mae or the Federal Housing Administration to allow investors to replace their funds and rehab the next house.
3. Restrictions make repair costs unruly.
Restrictive code requirements and expensive federal rules make it harder than ever for anyone to repair a damaged house.
Possible fix: Provide one-time exemptions for homes that are in or have avoided the foreclosure process from onerous regulatory requirements unrelated to safety. Stop using licenses, Environmental Protection Agency regulations and county codes to achieve social ends.
A good example of this problem is a recent regulation in DeKalb County. It requires any applicant for water service to prove that all water-consuming devices in the residence have been professionally replaced with so-called “low flow” devices. Not only does it add significantly to the cost of a rehab — or even the sale — of any existing home, the work may not be performed by anyone other than a licensed plumber.
These suggestions may not solve all our nation’s economic woes, but they would be a step in the right direction.
John Adams is an author, broadcaster and investor. He answers real estate questions at noon every Saturday on WGKA-AM (920).
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