Close to a third of the 800,000 repossessed homes in this country are owned by the government as the result of Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) loans gone bad. Dumping them all on the market would further depress the economy yet it costs taxpayers money to keep them livable.
Lorraine Woellert and Clea Benson writing for Bloomberg Businessweek say the government is open to anyone with ideas that can solve the problem. Since the 2008 financial collapse, the government has spent untold millions to help homeowners with loan payments. A signature loan modification program designed to help 3 to 4 million homeowners, fell short of its goal with only 657,000 successes to its credit. The problem is that the government agency charged with administering the program was overwhelmed with properties, particularly in Florida, Ohio, and Nevada. Equally as frustrating were the difficult government guidelines as interpreted by the lenders. Without set rules to follow, lenders often extended the 3 month trial period of lower loan payments to 6 months or even a year and denied the restructurings anyway even with properly filed paperwork.
Another common pitfall developed when the trial period extended past the 3 month mark and homeowners receiving unemployment benefits neared the end of their benefit period and could no longer show 9 months of guaranteed future income. The Treasury Department estimated that 25% of those in the trial period were denied permanent assistance. More money spent, more headaches, and few results.
In some cities a “For Sale” sign signals open season on the property for thieves and vandals. Efforts to keep people in their homes include offering month to month leases. As more homes in a neighborhood become vacant, it is more dangerous for those who stay behind so many just turn in their keys. The cost of keeping these properties in shape to sell includes bringing them up to code. The idea of a public-private partnership to offer these homes as rentals has been discussed. Again, the scale of the problem requires a large bureaucracy to administer and increased liability.
When the real estate market does improve there will be at least a 2 year backlog of homes for sale. How additional foreclosures will factor into that scenario remains to be seen but will most assuredly will cost taxpayers more money.
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