Housing plan may forestall defaults

As many as 3,000 Southwest Florida homeowners could postpone or even avoid foreclosure thanks to President George W. Bush's plan to freeze interest rates on some subprime mortgages, according to Herald-Tribune estimates.

Banks could save millions of dollars they otherwise would have spent in the foreclosure process, and the region's already swollen supply of unsold homes might not increase as fast.

"If we can stop those foreclosures from coming on and flooding the market, it will be a big help," said Barbara Anson, an agent with Wagner Realty in Myakka City. "A few thousand fewer foreclosures will keep inventories from rising and will help the market bottom out."

But as Treasury Secretary Henry Paulson said Monday, the measure is no "silver bullet."

It will not eliminate the fundamental problems that have depressed real estate markets across the country and have made lenders skittish about lending to anyone except those with the most pristine credit.

During the real estate boom, investors bought far more houses than they can now afford to carry. As result, inventories of unsold homes have risen to unnaturally high levels, causing prices to fall, sales to slow and foreclosures to rise.

The sharp increase in problem loans has caused lenders to stop lending to people with poor credit, and bankers say they are not going to loosen credit again until the real estate market stabilizes.

"Until we see valuations leveling off and starting back up, we will continue to feel real stress in terms of lending against real estate across the entire state," said John O'Neil, chief executive of Sarasota-based Century Bank.

President Bush made it clear Thursday that his plan "will not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could not afford."

Instead, his plan will freeze interest rates for five years on subprime adjustable rate mortgages for homeowners who meet certain criteria.

The homeowners must live in their homes, be current on their payments and prove they would not be able to handle higher interest rates or refinance with a traditional fixed-rate mortgage.

The White House plan does not force mortgage companies to give eligible homeowners a break. It is voluntary.

Bush has said that 600,000 people in the United States would be eligible to benefit from the freeze. That represents 12 percent of all subprime borrowers.

Based on that ratio, about 55,000 of those beneficiaries would reside in Florida.

Determining how many of those 55,000 live in Southwest Florida is more difficult. The Mortgage Bankers Association, which calculated the number of subprime mortgages at the state level, did not have similar statistics for the county level.

But Manatee, Sarasota and Charlotte counties have logged about 5.5 percent of the foreclosure filings in the state, according to RealtyTrac statistics. If the three counties have a similar portion of the state's subprime mortgages, about 3,000 homeowners would benefit from Bush's plan.

"Keeping those people from foreclosure will help lessen our ever bulging inventories," said Ross Bryans, an agent with Central Park Realty. "It will help soften our landing."

In early November, there were 8,411 unsold homes and 4,653 condos listed for sale in Sarasota County. That represented a 31-month supply of homes and a 40-month supply of condos.

A healthy market generally boasts inventory levels of six months.

If 3,000 more homes and condos were added to the market because of foreclosure, supplies of homes would increase by three months and condos by four months, according to Herald-Tribune estimates.

Keeping that from happening is unquestionably positive, real estate agents say.

But the Bush plan does not do anything to address the problem that speculators are continuing to default on their loans at an accelerating rate.

"A large percentage of our problem loans are where the property is not the owner's primary residence," said O'Neil of Century Bank. "The people walking away from property are typically investors. Primary owners will claw and scrape to stay in their homes."

And rather than help real estate agents and mortgage brokers, some critics argue that the moves will actually hurt their business.

"It locks people into their homes," said Nancy Detert, a former mortgage broker who is running for the state Senate. "These people will not sell for five years because they won't want to give up their low teaser rates. If they move with their low credit scores, their interest rates will go up."

But the great unanswered question, said Gordon Hester, president of Gulfcoast Mortgage Solutions on Siesta Key, is whether the Bush plan will put lenders at ease.

"For the market to change, the lender has to get back in the game," Hester said. "If this gives the lender confidence, then it's positive. Right now, banks don't want to make any loan unless it's a no-brainer."

Hester added that banks are not going to alter their cautious approach until they see some results, and that may take a long time.

"Everyone is skittish, and confidence is low," he said. "People are sitting on the sidelines. They see problems in the economy. They think we're heading to recession."

For Budge S. Huskey, senior vice president for the Florida Region for NRT, the parent of Coldwell Banker, the Bush plan is still a move in the right direction.

"It will result in a calming of the market," Huskey said. "Lenders will not have to take on as much inventory and will not have such a huge disposition cost. It will also be better for neighborhoods."

On the whole, it is a net positive, said Geoff Allison, co-owner of Gulf Atlantic Mortgage.

"The goal of the plan is to stop the bleeding, to stop the frenzied foreclosure process that keeps feeding on itself," Allison said. "I'm not in favor of the government getting involved, but this may help us get through the cycle."

Source : heraldtribune.com