Detroit can't sell repo houses, even for $500
Filed under: Home, Real Estate, Mortgages
What if you gave a house giveaway and nobody came? This was almost the scene last week as Wayne County (Detroit) tried to auction off almost 9,000 repossessed properties only to find over 80% of them drew nary a single bid, even with the minimum set at $500. According to Reuters, these properties would fill Central Park in New York City.
The auction didn't go smoothly, however. Out-of-town speculators cherry-picked prime properties in areas such as the Boston-Edison district, while locals who showed up too late for registration weren't permitted to take part.
Complicating the Detroit realty market is a new rule, the Home Valuation Code of Conduct used by Fannie Mae and Freddie Mac that requires the mortgage lender, rather than the mortgage broker, to arrange for an appraisal as the basis of the mortgage.
Since mortgage brokers are usually local, they naturally use local appraisers familiar with the local market. Mortgage lenders, however, often distant from the location, may well deal with appraisers that aren't savvy about the local market, and consequently undervalue a house and kill a financing deal.
I spoke with Tony Gebrael of Hometown Demolition Contractors in Sterling Heights, Mich. who told me that the cost to demolish a typical home in the area ranges between $5-$15 a square foot. A 2,000 square-foot home would therefore cost $10,000-$30,000 to tear down.
This means that if Detroit is sitting on most of these roughly 7,200 unsellable properties, it could cost the city around $140 million to pull them down. Detroit is already running a $300 million deficit.
And every demolished home is one less potential source for tax revenue. Talk about a vicious cycle...
Reader Comments (Page 1 of 1)
10-26-2009 @ 10:04PM
Jonathan Miller said...
You've got HVCC wrong by making it sound like the old way was better. That's overly simplistic.
Neither the old way or HVCC is good for consumers or the financial system. The old way actually biased values high which is partly why we have the problems we do now - pretty idealistic to think that mortgage brokers pick local experts for only quality because they are only paid if the deal closes. That created a systemic bias for picking appraisers who play ball and deliver whatever value is needed - remember, a larger percentage of mortgages are based on refi's where the homeowner picks the number they need so the appraiser becomes the deal enabler. Its a mess. On the other hand, HVCC enables an unregulated institution to manage appraisals for banks called appraisal management companies which now dominate appraisals. The appraisers they use work for half the market rate, have untenable turn time requirements without cutting corners and the appraisal fee is higher for the banks (before split with appraiser), they often come from outside markets and are very conservative because they don't know the markets they cover. Its a mess.
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10-27-2009 @ 6:20PM
Angela said...
Does it never occur to them that most of the people in these foreclosed homes could have probably scraped together or qualified to refinance $500 or even $1000. I have no sympathy for these banks being unable to sell these houses when they could have made arrangements with the current tennants to keep them in and playing. In my experience most people who are foreclosed on these days aren't trying to cheat the bank, they're doing what they can.
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