On February 18, 2009 the Obama Administration announced a $75 billion round of housing incentives to help stem the tide of foreclosure.  The rules for this package should be out in April.  In the meantime, we can only speculate about the degree to which the plan will help the faltering housing market.

 Bill Callahan commented in a blog post about some of the realties of the Plan for saving Cleveland’s aging stock of housing.  He says that most of those in danger of foreclosure in Cleveland are either too poor or out of work and won’t qualify for the mortgage modification terms of the Foreclosure Plan.  For these individuals there may be little hope to avoid foreclosure.  The picture attached to Callahan’s blog post is of a vandalized older neighborhood filled with abandoned homes.  This is the picture of foreclosure that is repeated in dozens of cities across the U.S. caused first by the oversupply of housing, the credit crunch, and then by the massive job losses sweeping the country.

 Callahan points out that nothing in the Plan will keep tenants in rentals once they reach the point of being bank owned.  Funds exist to help put these people up in motels and other temporary housing in order to keep them off the street, but nothing in the new proposal will keep foreclosed properties from becoming derelict, abandoned eyesores. Meanwhile, tenants who are innocent victims of foreclosure are being forced out even when they are willing and able to pay.  

 It is the impact of empty cities filled with abandoned single family and rental properties that makes it seem like the recovery is such a long way off in communities like Detroit, Cleveland, Las Vegas and Cape Coral.  The empty urban neighborhoods are leading to an uptick in vandalism and other street crimes, as well as further damaging property values.  Cities that look abandoned are not cities that people want to move to, fueling the cycle of deterioration.

 There is one glimmer of hope for these abandoned cities in the Obama Foreclosure Plan.  A total of $2 billion is being allocated to cities and community action groups to come up with innovative ways of combating foreclosure. For those cities that will not be helped much by the loan modification aspects of the Obama Foreclosure Plan, perhaps the community action money may be of some benefit instead.

 What might help would be plans for innovative community partnerships to solve the housing problem that will keep tenants in REOs until they are ready to be renovated or reoccupied and programs to help new Investors purchase, renovate and put end buyers into these homes could help to revitalize many decaying cities hit hard by foreclosure.  The innovative assistance could come in the form of low interest rehab loans for Investors and down payment assistance for low income buyers.

 Alternatively, these funds might be used to help community public housing authorities and non-profit groups such as Habitat for Humanity to buy up large numbers of REOs to rehabilitate and populate with low income homeowners who are helping to pay for the home through sweat equity and low or zero-interest loans.

 As Short Sale buyers, it would also be helpful to see streamlined processes come out of the Administration’s rules so that deals can be approved more quickly.  Perhaps local communities could also make loans available for responsible Short Sale Investors, particularly for those who are just getting started in investing, for rehab and bridge loans to carry projects through until new buyers are in place and properties are properly seasoned to be turned over to new buyers.

 Anything that will allow properties to be rehabbed and bought up by stable end buyers will help neighborhoods ravaged by foreclosure to prosper again.  The problem is so massive that it will take an army of Investors, combined with a legion of Mortgage Brokers, along with a host of willing Loss Mitigation Specialists in lending institutions and some willing Community Action Groups armed with Federal funding to break through the bottlenecks and get the housing market going again.

 Once Short Sales and REO buys have been accomplished, foreclosure-ravaged neighborhoods will be reestablished at sustainable, affordable market values that average homeowners can afford to maintain provided the job market also stabilizes in these communities.

 We’ll offer more commentary as the Plan rules and impacts become clearer.