Lenders Slow to Address Florida Mortgage Defaults
Real estate brokers tend to have an optimistic view of the housing market, so it is instructive to read a refreshingly candid though discouraging guest column from Florida broker Mike Morgan in the latest issue of Barron’s.
According to Morgan, Florida’s housing and financial markets are in the eye of a hurricane, “and the back half will hit us twice as hard as the front.”
The failure of the lenders to address their issues with defaults is compounding the inventory problem to the point where we will see a tidal wave of inventory hit the market.
“Buyers now realize lenders are going to take weeks or months to review and respond to offers that often reflect market value but fall short of covering the balance on the mortgage, ” Morgan writes. “Such “short sales” should be the easiest way for lenders to move inventory at market prices — but the lenders have not faced reality. And now, most buyers who have had experience with short sales no longer want to look at short-sale properties because of the long and convoluted process. Instead of using this tool to realize market values, the lenders are dumping property into below-market foreclosure auctions, which then creates another new downward spiral for prices.”
“Lenders’ failure to address these issues has forced more defaults, which lead to skyrocketing foreclosure rates. Defaults and foreclosures mean huge expenses for the lender, and significantly lower values. And it gets worse for lenders. In the most extreme examples, lenders cannot foreclose because the documents have not followed the mortgage.”
Morgan also is skeptical of attempts to forestall foreclosures:
Lenders may be telling Wall Street and Capitol Hill that they are developing plans to keep owners in their homes, but we are seeing the exact opposite in the world of reality.
“Even when we try to work with lenders, most of the time there is no one at the helm with the authority to process a cup of coffee, let alone the sale of a property in default. The easy answer is to simply let the property flow through to the foreclosure auction, even when that means 30% to 50% less in sale price.”
The problem appears to be spreading to commercial real estate too:
“Commercial and retail property are also becoming casualties in the back half of the hurricane. Drive through just about any Florida market to see all the For Lease signs on commercial property. Real-estate agents, lawyers, builders, contractors, mortgage brokers, insurance companies, furniture stores and all the rest are going out of business and leaving a flood of office and commercial inventory vacant.”
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