The Word of the Quarter

February 13, 2008
The last half of 2007 the "in" word seemed to be "sub-prime". The first quarter of 2008 the "in" word has see,ingly changed to "foreclosure". All of the media are focused on it. The Congress is focused on it. California's governer seems focused on it. President Bush is focused on it. The treasusry secretary Paulson is focused on it. Fed Chair Bernanke made spectatcular rate deductions in response to the "credit melt-down".
To those of us in the real estate profession, foreclosure rates have always increased in the downside of a real estate cycle. I suspect that the arrival of the information age has greatly expanded the data available for disemination to the public. We had a huge number of foreclosed proerties back in the 1990s when the government created the "Resolution Trust" to aid lenders in the sale of repossessed homes. We even had a separate department that exclusively handled these properties for Freddie Mac and Fannie Mae. As I recall, this glut of properties lasted at least five years.
It will be interesting to see how all the programs created to assist homeowners in foreclosure will ultimately work. In any program, the final question will be the ability of the homeowner to make the payments and the desire of the homeowner to make payments on a loan that may be greater than the present market value of the home. It is the psychological downer to know you have no equity and this is what leads to a homeowner's decision to stop making the mortgage payments, perhaps even more than the inability to make the payments. Helping the homeowners under the threat of foreclosure may or may not address this issue.