A waiting game

Obama’s HAMP program, HUD’s Emergency Homeowner Loan Program, even the recent moratorium on foreclosures are all futile efforts at fixing the housing market, University of Central Florida Economist Sean Snaith said.

“The bottom line is that people have to be able to make the mortgage payment, and with unemployment as high as it is, nothing is going to stop that. It does not change the underlying fundamentals of the economy,” he said.

“The housing market is not going to get healthy until unemployment goes down. It’s a waiting game. It’s going to take much of 2011, especially in Florida, to strengthen.”

Unemployment has been hovering at 11.8 percent and an October Workforce Central Florida report predicted that figure will not dip to a stable 6 percent until at least 2016 or 2018.

“The most persistent problem keeping this real estate market bad is unemployment,” agreed Matt Englett of Kel Attorneys, who specializes in foreclosures and is currently handling 6,500 foreclosure cases. “We have a really high (unemployment) rate locally, much higher than the national average, and if people aren’t making money, it’s difficult for them to make a mortgage payment or buy a home.”

Snaith predicts a slight uptick in job growth next year.

“A strong economy is the underpinning of the housing market,” he said. “With all these massive pieces of legislation that Congress and the White House has put through (health care, housing) it created a real black cloud of uncertainty over the economy, and in that kind of environment, firms do not have the confidence to add to their staff. Growth is pretty modest right now.”

According to the WCF report, job vacancies are up 35 percent — a product of the recession, Snaith said, because employers are seeing that they can meet demand with less staff.

Last resort

But many people are not waiting around for the real estate market to improve and have decided to walk away from their underwater mortgages — the home is worth less than the mortgage. Englett says this can be a positive financial move as long as it’s a strategic default, which means the borrower can afford the mortgage but defaults because they see no way to make their money back on the underwater loan.

Strategic default involves asset protection and litigation, which he said generally results in a settlement with the bank that is “pennies on the dollar” compared to the actual money owed. A typical settlement for a mortgage that is $100,000 underwater is $20,000 and that can be paid back interest-free, he said.

“What we see now, and are seeing more and more of, and what I think will be a trend in the next few years, is that all these people who walked away, the banks are selling that debt to debt collectors who are suing the homeowners,” Englett said, adding that the bank has five years to get a judgment against the borrower, and once they do, they have 20 years to take action.

“Banks are holding back on doing that because they don’t want public perception to get even worse but they’re not going to sit on it forever because it’s worth something.”

He said more people are choosing strategic default rather than walking away from their bad loan but expects people to not take either of these actions once the market improves, even if their mortgage is still underwater.

“Compared to two years ago, people are reacting differently to the threat of foreclosure. They know there are options and that the worse thing they can do is walk away from their home and think the problem will go away.”

Seeing eye-to-eye

Frank Rubino, VP of the Chase Homeownership Center in Orlando, agreed. Instead of sitting in their defaulting home, they are reaching out for help.

The center in Orlando is one of two offices in Central Florida designed to give people in trouble a face-to-face meeting with their bank, instead of dealing with machines over the phone. A homeowner must be in default to get help at the center, but Rubino said they also have programs for people who are current but need help.

“It’s a very personal process to go trough — they have to tell their life story. That’s why we have the center where it’s more private,” Rubino said. “Everyone’s been affected, from the super affluent to the blue collar worker. In many cases it’s outside the consumer’s control but everyone identifies with it a little differently.”

There are 51 offices across the country that have performed more than 900,000 modifications since opening in January 2009, mostly by walking them through the HAMP program, which lowers the interest rate and longevity of the loan to help make it more affordable to those whose mortgages are applicable. They also assist Washington Mutual and EMC customers.

“Customers are trying to seek help much earlier in their hardship process compared to 18 months ago,” Rubino said. “They are taking charge. But you still see folks walking in a week before the foreclosure sale date on their home, and then it’s a mad scramble to get things done.”

This summer, legislation passed that does not allow a hold on a foreclosure less than 10 days before the foreclosure is settled. This cuts down on the volume of people in the courts and stops people from taking advantage of the system. Rubino said he has not seen the effects of this change yet.

“People are super appreciative that we’re here, face-to-face to help them through every step of the process. We’re the only ones who offer that, as far as I’m aware,” Rubino said. “There are some people who feel they’re entitled to assistance because they are a taxpayer, but for the most part people are genuine and humble.”