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The nation's housing market is improving, but remains constricted by uncertainties related to repurchase liabilities and longer foreclosure timelines in some of the nation's hardest-hit states, researchers with Boston Consulting Group said in a report commissioned by The Pew Charitable Trusts.
Pew is where former Federal Deposit Insurance Corp. leader Sheila Bair went after leaving the FDIC a few years after the housing market meltdown.
In a paper titled, "Strategies to Improve the Housing Market", the consulting group concludes the various foreclosure processes used by different states are now causing the recovery to be stalled in certain jurisdictions. Bair edited the housing-fix proposal.
"California, predominantly non-judicial, is currently sitting at an average of 335 days (to foreclose), compared with a national average of 382 days," the paper said.
"However … other hard-hit states such as Florida and Illinois are among those with the longest timeline to foreclosure. Longer foreclosure times are associated with greater loss severities for lenders, both because borrowers may stay in homes for years without making any form of payment, and because a borrower’s incentive to maintain the property decreases once the foreclosure process starts," the researchers added.
To resolve this issue, the paper wants to develop a model foreclosure process based on best practices that can be voluntarily adopted within individual states to try and clean up the process.
"Work should progress with interested states on a voluntary basis, and we encourage the participation of states with long foreclosure timelines and significant pipelines, which stand to benefit from streamlined processes along with the servicers and owners of delinquent loans," the Boston Consulting Group said.
To push through a glut of REO properties, the research paper believes private investors and land banks should be considered key tools in getting real estate moving again.
But to do so, experts that shared input with Pew researchers want caps on individual investor ownership of REO properties, which is now limited to 20 Fannie Mae and 4 Freddie Mac loans, lifted.
Furthermore, the paper recommends new seven-to-ten year federal financing for REO strategies, along with more rent-to-own initiatives, to spur investment activity. In addition, the paper calls for land banks with a primary focus on managing low-value properties at risk of blight.
The future of the securitization market also hinges on whether repurchase liabilities, or the threat of loans being put-back on the originator, can be resolved.
The paper suggests the creation of a clear representations and warranties framework, a reformation of how servicers are compensated and clarifying the rights of first and subordinate lienholders, while creating the infrastructure necessary to make private investors feel safe with the process of investing in private-label RMBS.
Click here to access the full paper.
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