Will Lender Settlement Take More Distressed Home Off the Market?
A massive settlement between mortgage giants and the states is being ironed out to penalize banks for fraudulent lending practices and help borrowers but could it do more harm by killing off deals on distressed homes?
The settlement potentially worth up to $35 billion is anticipated to offer a three pronged compensation and assistance program as punishment for foreclosure fraud and predatory loans which have resulted in lost homes and homeowners trapped in underwater mortgages. Clearly any smaller company or individual caught committing something similar would be closed down or in jail. Still more money for homeowners is good news for real estate investing right?
Well may be not. The proposed settlement would give checks of $1,800 to some homeowners who were victims of the robo-signing scandal, though the little of this money which actually reaches displaced ex property owners is more likely to be spent on disposable items rather than provide any direct boost to the housing market or provide new housing for those who need it most.
Billions more are pegged for use to reduce selected borrowers principal mortgage balances by $20,000 and reduce some interest rates down to 5.25% through refinancing. Obviously not the most attractive terms that could be offered, not even in touch with today’s market rates by a long shot or near to what others are receiving in relocation funds for short sales or through loan modifications. However, it may be a move that is enough to make more homeowners hold off from walking away from their homes or pushing for short sales just yet. Ultimately these homeowners which are already on the brink will likely slip back into default but what will this do to the housing market in the short term?
An artificially propped up housing market with fewer homes on the market and fewer distressed homes, short sales and foreclosure properties available to investors could mean slowing down the much needed turnover of these homes. It could temporarily lift housing prices due to limited supply setting us up for a quadruple dip in home prices after election time. However, even in the short term the consequences could be devastating with more jobs lost which have been created by real estate investors flipping houses and rehabbing neglected homes.
Smart investors will go to work educating homeowners on the folly of trying to stay in homes which will still be lost or missing out on the best opportunities for short selling while banks are still offering big payouts.
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