Jan192017

The weak case for occupancy after foreclosure

Some progressives want people to occupy houses they don’t own and don’t pay for.

forget_renting_nightmare_alleyIt’s sad when someone is forcibly evicted from their family home. People develop strong emotional attachments to real property, so many people feel compassion and empathy for those enduring such a difficult loss. Since nobody wants to feel the pain of loss, many people suggest we should stop foreclosures — or at least the evictions after the fact.

(See: Should evictions be banned to stop hurting people’s feelings?)

When people rally to stop foreclosure, they forget there is a next chapter to the story. What happens to the family and the house after the foreclosure?

First, the house doesn’t sit empty. The distressed debtor who rented money from the bank to occupy the house and appear on title will turn over the property to a new buyer who is not as indebted. This new buyer will be able to sustain ownership under stable, government-backed financing terms.

Second, the family who left the house generally enjoys an improved financial life. With the crushing debt and onerous mortgage payment removed, the family was free to move into an affordable rental, generally in the same neighborhood.trashing_the_neighborhood

For most staying nearby was a practical decision because their children had friends in the neighborhood or school, and most delinquent borrowers still had jobs — contrary to the popular spin, most foreclosures were not caused by job loss but by toxic mortgages.

People with jobs stay in the area to keep it; plus, with few jobs created elsewhere, most people had nowhere else to go. As a result, there were no mass migrations associated with the Great Recession — no breakdown of the social order.

The Case for Allowing Tenants and Owners to Remain in Their Homes Post-Foreclosure

Rachel Bratt, January 11, 2017

Although federal guidelines allow foreclosed homes to be sold with occupants, in a recently published article in Housing Policy Debate, I report that the guidelines are largely irrelevant in practice. In fact, data obtained from HUD through a Freedom of Information Act request shows that in Fiscal Years 2010-2014, there were a total of 23,746 requests for FHA-insured foreclosed properties to be conveyed while occupied. However, only 87 of those requests—much less than one percent—were approved by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA), which is part of HUD.

The reason HUD and the FHFA don’t allow former owners to retain occupancy is simple: an occupied house sells for less than an empty one.

For one, a recently foreclosed owner isn’t going to assist in the resale of their former home. They won’t be cleaning up for showings or be accommodating to potential homebuyers. In fact, since they squat and pay nothing, their incentive is to drag the process out as long as possible.

No owner occupant will want to buy the property because then they will have to evict the former owners. Who wants to deal with that headache? And there is no assurance they will be able to get the deadbeats out easily.

Further, most of these properties need repairs due to deferred maintenance while the house was in the foreclosure process. A few cosmetic repairs and a good cleaning — something only possible after the former owners are gone — will add far more value than the cost.

There is no benefit to HUD or the FHFA to leave a former owner in place after a foreclosure.

The data—along with interviews done with key stakeholders in Greater Boston—raise troubling questions about the extent to which HUD/FHA as well as the Federal Housing Finance Agency (FHFA) and housing-related Government Sponsored Enterprises (GSEs)—specifically, Fannie Mae and Freddie Mac—are continuing to view foreclosed homes more as financial assets, whose value they seek to maximize by requiring that they be vacant when they are sold.

This is troubling? These properties are financial assets, assets that must be sold to recover the capital on the loan they insured.

She implies HUD and the FHFA should view these properties as the family homes of the foreclosed, and therefore, they should let the former owners stay as long as they like. The reality is that whatever family emotional attachments were involved, the family no longer has any claim to the property. HUD and FHFA should view these as financial assets and recover the most they can.

In doing so, they ignore the fact that the buildings also are dwellings for financially strained households who, if evicted, may need additional housing subsidies

How is that the problem of HUD or the FHFA? What she’s really arguing is that these people need a handout, so we might as well give them a house.

Allowing them to stay on after the foreclosure merely delays the inevitable. These people must move on and find other housing. If they qualify for a subsidy at that time, then they can apply and get one. A few months of extra squatting might save the Section 8 program a few dollars, but it will cost HUD or the FHFA much more than that on the recovery from the foreclosure resale.

as well as the fact that continued occupancy by prior owners and tenants can be part of an effective strategy to preemptively stabilize neighborhoods.

Feel-good bullshit.

While there have been some changes in an FHFA policy that could soften the GSEs’ “no occupants at conveyance” practice, it is not yet clear whether this will result in former owners and tenants being allowed to remain in their homes following foreclosure. …

What is clear is that allowing post-foreclosure squatting is a bad idea.

To enable former homeowners and tenants to continue living in their homes following a foreclosure, greater public resources and commitment are needed.

She wants to commit my tax dollars to implement this stupid idea.

Programs and financial assistance that would enable nonprofits to purchase foreclosed dwellings, then rent them back to the prior owners and tenants, and to successive low-income households, would result in a long-term source of affordable housing. …

Do we really want non-profits to generate income from renting properties to low-income tenants? Will they be kinder and gentler landlords? Or will they take the rent from those who bother to pay to subsidize those who don’t bother to pay?

It seems likely that when vulnerable, low-income households are facing the loss of their homes, other units of government may need to step in to help them find and pay for their new housing.

The long-term costs under this scenario—both financial and otherwise—are virtually certain to far outweigh a short-term, up-front investment in keeping these households in place.

The long-term costs will be there regardless. The short-term costs are virtually certain to go up significantly because neither HUD or the FHFA will recover as much as they should on their foreclosures.

Absent these changes, the various agencies will continue to implement a highly problematic set of procedures that promote family instability, potentially increase homelessness, and result in vacant homes, which have adverse neighborhood impacts.

Complete and utter bullshit.

Banks gave people a large number of homes. Think about it — banks paid for the house when the loan owners purchased, then when these people stopped paying the loan, lenders did nothing about it. And now people lobby to allow former owners to squat indefinitely.

Do you think squatting is a viable long-term solution? I think not.