Tuesday, February 17, 2009

FEDS: "Redlining" Urban Historic Neighborhoods?

Everyone has heard about the practice of 'Redlining" where Banks and lender basically write off certain areas of town as "not loan worthy". These areas were almost always Urban and working/middle class. During the "home buying rush" of 2002-2005 many lenders actually preyed on these neighborhoods making loans right and left, often with shady appraisals, little qualification and flexible terms.

The Mortgage meltdown and ensuing housing crisis have left Fannie Mae, Freddie Mac and HUD with tens of thousands of properties across the country. Cincinnati is no exception to this trend and it appears that these agencies are engaged in the wholesale "dumping' of properties in Urban areas.

Since I am keenly interested in Historic properties I regularly follow the MLS and I noticed a trend of properties being "dumped" by these agencies for pennies on the dollar. If you look at the HUD listing site of current properties http://hud1.towerauction.net/cgi-bin/e24_select_page.cgi?office=e24&state=OH&page=CINCINNATI1 an interesting pattern

Hud lists properties based on a priority bases. Owner occupant is a higher priority than "all bidders' . Properties listed as owner occupant priority means that a higher priority is given to a bidder who intends to live in a property rather than an "investor" who may just hold a property or rent it out. Foreclosures in better neighborhoods tend to be listed with owner occupant priority but homes in Urban areas like Price Hill,Northside, Fairmount, West End tend to be"all bidder" sales which means they will likely be bought by investors types who may just sit on them or Flip them for a meager amount after 90 days.

Fannie and Freddie often "dump" properties in these neighborhoods for pennies on the dollar. Take this West End property that was listed at ONLY 999.00! The property was assessed by the city at 105,000.00 and was based on sales price in 2006 of 105,000.00. The land value alone of this property is listed at 9000.00 per auditor. Now one can clearly argue that this is a distressed property and needs considerable work , however how Fannie Mae can "justify" to taxpayer and neighbors the dumping of this property for less than 1000.00 remains to be seen and one must ask if this were a house they had in the suburbs would they be so eager to dump it on the market at such a discounted rate. In my research I could not find such examples in suburban areas. Over the last several months I have found dozens of examples of this dumping by Fannie and Freddie mostly in West End, Price Hill, and Avondale. I also found one HUD auctions in MLS with starting prices as low as 400.00 in Price Hill and another in Fairmount starting at just 1000.00.

Who loses? Well the taxpayers lose on several levels. The "dumping' of properties by HUD, Fannie and Freddie drive down property levels to unrealistically low levels. Appraisals for homeowners considering refinancing are based on closed area sales and the sale of 1 or 2 properties for 1000.00 can drive down values by 50 percent or more making refinancing impossible and selling a home difficult as it often becomes impossible to get a loan , because appraisals are so low because of 'dumped' property showing up on sales reports.

The city and county lose as well. When an investor buys one of these homes the first thing he or she does is appeal the tax rate claiming an arms length sale at a low price. The city has little ammunition or time to argue otherwise. Values drop and other homeowners appeal , based on blighted property next to them often bought by investors willing to sit on properties and gamble that values go up. These long term vacancies create blight in a neighborhood as well as provide opportunities for criminal activity. This required additional police expenditures.

President Obama plans to announce a housing recovery plan this week yet it does not stop the dumping of properties in Urban neighborhoods. Without a stop to this practice and perhaps a moratorium on listing foreclosures by HUD,Fannie and Freddie, it seems unlikely that the market can find a real bottom, reduce housing inventory and begin real recovery.

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