Fixing The Foreclosure Crisis

Although residential mortgage foreclosures have wreaked havoc on many communities in metro Detroit and Michigan, efforts to stem the damage and boost property values are under way. But do the relief programs go far enough?


Published:

(page 4 of 7)

Although the excess supply of homes on the market and weak demand brought on by double-digit unemployment, population flight, and a weak economy is largely to blame for the drop in values, many experts are finding that one of the biggest problems precluding a housing market recovery involves the appraisals banks frequently use when researching potential transactions.

The appraisals often are low — due, in part, to federal guidelines that were tightened in 2009. The result generally means that either the seller is forced to lower the sale price, or the buyer puts down extra cash. If either condition fails to occur, a sale usually can’t be consummated. For experts like Chris Mayer, senior vice dean and real estate professor at New York’s Columbia Business School, the stricter guidelines have exacerbated the housing problem.

According to SEMCOG, low appraisals further threaten underwater homeowners. As a result, they are at a higher risk of deferring maintenance, walking away from a home, undertaking a short sale, or converting the property to a rental. The phenomenon also affects homeowners who wish to borrow money to upgrade or expand their residences. The problem is that the value of the comparables, or comps, is dragged down by a nearby foreclosure.

“Our concern is that the appraisals are coming in lower than they should be, and we are seeing inconsistent appraisals on the same home,” says Vettraino, who is leading a SEMCOG discussion on whether to propose a “blended approach” to arrive at more fair and reasonable appraised values. The approach would include an appraisal by a qualified appraiser, a brokers’ price opinion, an automated valuation model, and the insurance cost or replacement value of the home.

“I often hear about the appraisal problem because we are seeing inconsistent and often ridiculously low appraisals that are causing sales to fall through,” says Claire Williams, president of the Michigan Association of Realtors in Lansing, and corporate manager and partner at Remerica Hometown One based in Plymouth Township.

Meanwhile, Morgan is working with industry advocates to pursue a proposal that would require that appraisers contact a central assessing department that understands the unique attribute of a local market. “When a bank decides to go with the lowest price point, which they always do, it ends up as a comparable that affects everyone else who is refinancing or buying,” she says. “At the end of the day, the entire way we evaluate real estate has to change.”

In the midst of the fallout from the foreclosure epidemic, the state Legislature and the appellate courts are now addressing practical solutions.

Edit Module
Edit Module Edit Module
Edit ModuleShow Tags

Related Articles

Autonomous Technology: Robo-Cars

Metro Detroit is emerging as a leading pioneer of autonomous vehicles, a market that could generate $250 billion in economic activity by 2017.

The Century Club - 2015

From engineering to clean water, firms and institutions evolve to thrive 100 years and beyond.

2015 Champions of the New Economy

For the sixth year in a row, Junior Achievement of Southeastern Michigan, in partnership with DBusiness magazine and News/Talk 760 WJR, selected six regional executives who are driving growth in highly competitive industries.

2015 Top Lawyers in Metro Detroit

State of the Auto Industry

Michigan and the auto industry have been intrinsically linked ever since Charles Brady King steered the first horseless carriage through the streets of Detroit in March 1896. Now, 120 years later, the Motor City remains the epicenter of a global industry.
Edit ModuleShow Tags

Most Popular

  1. Royal Oak's Café Muse Owner to Open Restaurant in Detroit's West Village
    The owner and chef of Café Muse in Royal Oak has plans to open Geiger Eat Shop, a restaurant and...
  2. $60,000 in Scholarships to be awarded at Metro Detroit Youth Day
  3. Return of Fortune
    A Detroit app developer mines repeat business from a steady stream of mobile upgrades
  4. Dow Chemical, Saudi Arabian Oil Co.’s $20B Industrial Complex Set to Open in 2016
    A $20 billion joint venture between Midland-based Dow Chemical Co. and the Saudi Arabian Oil Co.,...
  5. Ford Fund, Lear Corp. Help Establish WSU Student Finance Lab
  6. Fresh Thyme Farmers Market to Open 3 Stores Across Metro Detroit
    Fresh Thyme Farmers Market, a grocery store chain that features organic and natural foods, will...