By Michael Stubel

January 20, 2012

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month, contributors from different parts of the housing sector are invited to respond to a discussion topic. Guest posts are shared with Housing Commissioners to help inform their work.

Have a pressing question you’d like us to consider? Please leave it in the comments section. We encourage you and our expert bloggers to add comments, contributing to the national dialogue on solutions for the future of the housing sector.

Expert bloggers are not members of the BPC Housing Commission. Any views expressed on this forum do not necessarily represent the views of the Housing Commission, its Co-Chairs, or the Bipartisan Policy Center.

What should the federal government do to address the inventory of foreclosed properties?

Clearing the Housing Market
By Mark A. Calabria

Since the bursting of the housing bubble, the number of vacant homes, held off the market, has increased over 1.6 million, while the number of vacant homes for sale or rent has increased almost 800,000. Clearly we have a surplus of housing. Not all, but many of these are vacant as the result of foreclosure. Once they have completed the foreclosure process, these homes will add to supply, potentially depressing prices further.

Read the full post here.

Ideas for foreclosed properties, underwater owners
By Conrad Egan

More foreclosed properties should be made available for rental opportunities. It's a risky business that requires the involvement of seasoned professionals, many of which have arisen through the NSP process. FHA should also develop a Multifamily Rental product that supports the aggregation and successful financing and operation of such properties.

Owners who are "underwater" on their mortgages should be offered an opportunity to convert to a servicing first mortgage that matches the market value of their homes, with a non-servicing second mortgage for the remaining balance that is shared between the lender/investors and the borrower upon sale. Ocwen Financial has pioneered such a "Shared Appreciation Modification" that could serve as a model.

Read the full post here.

The merits of principal reduction, refinancing and rehab-to-rent
By Bill Kelly

This is no ordinary single family market, and in most jurisdictions we will not reach price or community stability without active engagement by current and by once and future homeowners--with counseling support.

With perhaps 2.5 million homes that have already been foreclosed, but 4.5 million more in serious default and perhaps 10 million underwater, dealing with already foreclosed homes without stemming the flow from the pipeline will stabilize neither prices nor communities. Clearly, the best solution where possible is to keep homeowners in their home through loan modifications. That will require much greater use of principal reductions, often with shared appreciation mortgages.

Read the full post here.

Steps to establish a balance in supply and demand
By Brian Montgomery

Economists calculate that the decline in home prices has cost American homeowners approximately $7 trillion in home equity. Compounding this problem is the fact that the inventory of homes available for sale remains high and there is potential for a significant volume of “shadow inventory” to hit the market. Intervention is necessary to support the fragile recovery in the housing market and to prevent further declines in home values. What steps must policy makers take to prevent the loss of additional trillions in home equity?

The abundant supply of homes available for sale presents opportunities for first-time homebuyers and “move-up” buyers as affordability is at an all-time high. Many, however, are hesitant to make a move as they wait for values to reach “bottom.” Action is necessary now to establish a balance in the supply and demand for residential housing in America.

Read the full post here.

A Durable Rental Conversion Strategy
By Jeremy Nowak

Despite recent RealtyTrac data that shows a slowdown in foreclosures in 2011 compared to the past three years, elevated levels persist. In fact, the recent slowdown is the likely result of processing and legal delays more than a reflection of an improved economy.

An oversupply of housing will persist for several more years no matter what policies are enacted by the Federal government. But there are some things that can be done to better target the marketing of existing foreclosed supply.

Read the full post here.

Rental transition could help meet housing needs, reduce excess supply
By Dennis Shea

With the homeownership rate continuing its downward slide, the demand for rental housing is strengthening. A weak economy, tighter mortgage underwriting standards, and the formation of new households by 78-millon Echo Boomers will combine to put upward pressure on rental housing. Converting a significant portion of the inventory of foreclosed homes to rental use could help meet the housing needs of thousands of American families (including those who have lost their homes to foreclosure) while reducing the excess supply of vacant homes that is weighing down the housing market.

Read the full post here.

To solve the foreclosure inventory, think in three housing dimensions at once
By David A. Smith

Thinking in only a single dimension (finance) won't solve the foreclosure inventory problem, because when these homes go through foreclosure, a fundamental duality (owner = occupant) is sundered, and it can be put back together only if we innovate in three dimensions simultaneously:

• New tenure form, that creates a pre-ownership rental arrangement giving occupants legitimate aspirations to earn future homeownership through service as their means of building equity.
• New operational model, reinventing the passive tenant/ active landlord stasis into a more collaborative format that enables us to use web-based technology to make management much more efficient.
• New financial forms, transferring at speed, in bulk, to socially entrepreneurial parties in bulk whose incentives are aligned with society's.

Read the full post here.

Searching For Waldo
By Frank J. Vaccarella

The federal role in reducing the inventory of foreclosed houses currently held by lenders is as challenging as searching for the cartoon character “Waldo” in the popular puzzle game, “Searching for Waldo.” Waldo is hidden in a mass of people, places and things that are so cluttered with obstructions that finding him takes time, perseverance, and patience, lots of patience.

As a by-product of the subprime lending bust, there is such a large inventory of foreclosed properties now weighing down the nation’s economy and hampering a sustained economic rebound (some $10 billion, an estimate by the Federal Reserve Bank).

Read the full post here.

The Government Needs to Address the Increasing Inventory of Foreclosed and REO Properties
By Joseph M. Ventrone

REALTORS® appreciate the Administration’s attempts over the last two and half years to keep families in their homes. However, nearly all the federal programs that were put into place have depended on the efforts of large financial institutions to assist consumers. Many of these institutions received vital funding from both the Treasury Department and Federal Reserve Board throughout the economic crisis, but these same institutions have denied similar support for families across the country. One of the key purposes of this extraordinary backing of these institutions was to ensure that liquidity supporting mortgage lending for all types of housing remained throughout the crisis; yet many creditworthy households remain unable to obtain fair and affordable mortgages.

Read the full post here.

The limits on policy options for housing
By Paul S. Willen

The views expressed herein are those of the author and do not indicate concurrence by other members of the research staff or the principals of the Federal Reserve Bank of Boston or the Board of Governors of the Federal Reserve System.

Since the subprime crisis appeared five years ago, policy makers have searched for a “game-changer.” Many believed that HopeNow, Hope for Homeowners, HAMP, HARP and large-scale MBS purchases by the Fed had the potential to mitigate the cycle of falling prices and foreclosures. But in the end, the foreclosures have marched on and the crisis has evolved more or less as expected. It was apparent in 2007 that the collapse in house prices over the previous two years had changed the dynamics of the housing market. In normal times, most borrowers have positive equity in their homes and the result of adverse life-events like job loss, illness and divorce is sale but by 2007, falling prices mean that millions of homeowners had negative equity and no longer had an exit strategy. Even in good times, normal transitions in the labor market mean that millions of people lose their jobs every month but after 2007, negative equity mean that those job losses translated, too often, into foreclosures. To eliminate the negative equity problem and restore the market to health, there were basically two options: reduce debt or increase prices. Both have proved exceedingly difficult to achieve.

Read the full post here.

Past Forums

December 2011 Housing Expert Forum: What are the most pressing issues in housing policy today?