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Sunday, December 30, 2007

Our own little Catch-22


We are officially in a “declining market” in Michigan. I say officially because that is what the mortgage companies consider our market to be and these days that’s about as official as one needs to get. What does that mean? For most buyers/borrowers it means paying more – higher rates and other “fees” that come with living in a high-risk area or maybe not even being able to get a mortgage. The risk here is that the value will continue to decline to below the loan amount, at least that’s what the banks are afraid of right now.

Joseph Heller would have a ball with this whole scenario. People are losing their homes to foreclosure; and, then, when they try to re-finance or when someone else wants to buy that house they can’t because it’s in a declining market and they can’t get a loan for it. And, why is it a declining market – because people are losing their homes to foreclosure and thus dragging down the values in the neighborhoods. Now there’s a real Catch-22!

I suppose I’m like a lot of people who never considered their more upscale neighborhoods to be high-risk; but, in today’s market, it doesn’t matter if you’re in Detroit or Birmingham or Gross Pointe or Southfield, you’re in a declining market. Sorry, Charlie, no mortgage for you! Values have dropped by anywhere from 10-20% in our area over the last year or two. In some places the values may be down as much as 30%. Nowhere in southeastern Michigan have homeowners been spared. The western side of the state may be doing better.

The really stupid thing is that many of the banks holding on to the foreclosed properties in our area also refuse to do FHA or VA loans, which means that they cut out many of the very people that are out there today looking to buy. The FHA programs in particular could help, because they don’t use the risk adverse approach to granting loans that the banks are using. So, now we have lots of major banks holding declining properties and other major banks refusing to let the buyers who want them have the only loans available that do not penalize the buyer for the risks involved. I tried to find a major-major joke there somewhere, but it just isn't funny. Heller would have loved this scenario. You basically can’t get out of here because you can’t get there from here – where ever “there” is these days.

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