Although we have not had a major foreclosure problem among Lafayette real estate, or throughout the greater Lamorinda real estate market, recent history has taught us that what happens to our neighbors DOES impact our market. Specifically, minimizing foreclosures and market softness in areas that are part of the “food chain” for Lamorinda real estate WILL have a positive impact on our market. This will positively impact the “move-up” market, a segment that has severely impacted in recent years.
According to the Wall St. Journal, the House Financial Services Committee is placing intense pressure on the major banks to take “immediate steps to write down second mortgages.” Here’s the current problem:
- Many homeowners owe far more on their homes than their home is worth, and their is little or no equity to support the second mortgage.
- Current accounting practices allow banks to carry these loans on their books at values far higher than their actual worth.
- Attempts by the homeowner to negotiate a short-sale is often blocked by the second lien holders continued claims against the homeowner.
- Finally, there is little incentive for the homeowner to continue paying on the first mortgage, thus propelling the home into foreclosure.
A new Administration program due out in the next few weeks will tie the second lien holder to a homeowner’s reduced payment schedule secured under “Home Affordable Modification Program,” thus automatically giving them a lower payment on both loans. This could yield a significant positive turn in future foreclosures. According to the WSJ, “Bank of America Corp. already has agreed to take part in this program,” and other major lenders are expected to follow. Since the write-offs will have a major impact on lender capital, it is expected that the Administration will allow the lenders to spread the write-offs over several years.
Assuming that this program is implemented as outlined, I expect that we’ll see an immediate positive impact to the areas of Contra Costa Count hardest hit by foreclosures, and a derivative, down-stream impact to the Lamorinda real estate market. Stay tuned…
Here’s a look at who is holding the second mortgage paper:
Second in Line -- Home Equity Lines & Other Junior Lien Holders
