The alarming rate at which foreclosures have been rising over the past year is definitely something to be concerned about. Today, some homeowners are getting a little breathing room as a couple of the biggest banks are granting a moratorium on foreclosures.As Lita Epstein pointed out yesterday, last month was the tenth month in a row where foreclosures were in excess of 250,000 as 274,399 foreclosures were filed in January. The foreclosure epidemic has been a serious drain on the overall economy, and it is hoped that the Obama administration is going to be able to develop a plan to help keep homeowners in their homes.
Obama is expected to announce a $50 billion plan shortly that will help create some foreclosure prevention, as well as create new standards for national lending. In anticipation of the upcoming initiative, big banks JPMorgan Chase (NYSE: JPM) and Citigroup (NYSE: C) have decided to put a moratorium on foreclosures to help keep the situation from spiraling more out of control than it already is.
JPMorgan will halt new foreclosures until March 6th. Citigroup will do the same until March 12th, or when Obama announces his new plan, whichever comes first.
Obama definitely has his hands full on this one. The real estate market is in tatters, and until the foreclosure mess is dealt with, things are only going to get worse. One of the biggest challenges the Obama administration is dealing with is restoring consumer confidence to the economy, and the first big stepping stone is going to be to get homeowners back on track.
As foreclosures continue to hit the market at an alarming rate, it has the effect of lowering everyone's home values. Banks are being forced to sell their foreclosure inventories at reduced prices just to get them off their books, and this is pulling down prices across the board.
Consumer confidence is key, and for most people their single biggest asset that they own is their house. As long as these values continue to decline there is little to no chance that these people are going to start to feel confident about the overall economy, so home prices are vitally important.
We noted yesterday that the average price of a home sold in the fourth quarter sank as much as at any time since the National Association of Realtors started to keep track of the data. While the lack of a fully functional credit market is partially to blame for this, the major component is the amount of foreclosures that are being unloaded at ridiculously low prices.
One of the ways that Obama hopes to help curb the current trend is by allowing bankruptcy judges to alter the terms on primary home loans. This would definitely help struggling homeowners stay in their properties, but is obviously being opposed by mortgage companies.
Time will tell what Obama is really able to accomplish here, but at least some homeowners are getting the chance to wait and see what decisions are made before having to face any possible foreclosures on their homes.
What are your thoughts on this situation? What, if anything, can Obama do to help get the real estate market back on its feet?
(For more insight in a possible Obama fix for the foreclosure dilema, read what Joseph Lazzaro had to say in his piece, Ray of Light: Obama administration may offer mortgage refinance plan)
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