Political Pressures Bear Down on The Boston Real Estate Market

With all the recent craziness going on in the local market it’s no wonder people are paying so much attention to real estate. One local Boston real estate agent and foreclosure specialist, was kind enough to contribute a market valuation analysis on current market conditions.

“With the recent popularity of the Short Sale in the Boston real estate market it’s no wonder property values can quickly become like the wild wild west. The illogical market goes something like this…A distressed homeowner short sales a property because the mortgage is worth more than the house.

Home buyers aren’t stupid though and realize that banks will settle for 80% of the FMV (Fair Market Value). This is because on many Boston area homes it costs banks at least 20% of the FMV to foreclose on a property (i.e. lawyer fees, upkeep fees, auction fees, etc…).

So, now we have a plethora of short short sales driving market prices down. If the neighborhood comps are selling for 80% short than regular home sales have to adjust in order to stay competitive. This is not even to mention that often times bank appraisers are not familiar with the local neighborhood and are basing assessments on the discounted short sales that recently sold. So, now there is this vicious cycle that will only stop if all the short homes are taken out of the equation.

So, if this is the case why hasn’t the Boston real estate market taken a much steeper decline? There are number of answers to this question. First off, many homeowners are unaware that there exists alternatives to foreclosure. Secondly, many government programs like ‘Hope for Homeowners’ and loan modification programs only offer a false sense of hope. These programs rarely work out favorable for the homeowner.

The Boston area loan modification process is still very backed up with lenders. Some lending departments are handling loan modifications, auto modifications, and credit payoffs all within the same department. Depending on the bank, short sale departments are separate from the modification department allowing processing to be more successful.

Wait a second, why would the government initiate programs that are not in the best interest of distressed homeowners? Simple, election year is always right around the corner! When this “Great Recession” is finally over you can bet your very last dollar that politicians are going to be bragging about how many homes were saved by their legislation initiatives.

It doesn’t matter if a homeowner that SHOULD short sale their home is actually in a worse situation now that they used a Government program to modify. What matters is that 1 more home is saved from foreclosure. So, at all the cocktail parties during re-election year when people ask this politician about their fiscal reform during the last 5 years he/she can say they saved ‘X’ number of homes from foreclosure.

With the recent FHA legislation that eliminates the 90 day wait period on selling a short sale to an FHA buyer this opens a whole new market to investors. Perhaps, this is the legislative system already making adjustments for their failed loan modification programs.

Of course the 90 day rule places strict limits on the transactions, “All transactions must be arms-length, meaning that there must not appear to be any impropriety taking place between buyer and seller. This requirement also indicates that any prior flipping activity on the home in the previous 12 months may be a red flag to the lender.”

Actually, this rule is nothing new to short sales as many lenders have been and continue to require transactions to be contingent upon signed arms-length agreement contracts.”

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