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

2016 Champions of the New Economy

For the seventh straight year, 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.

Fiber Wars

Internet companies are racing to provide ever-faster data speeds, but there’s a much larger economic opportunity — hyper quick connectivity is a proven business-attraction tool.

Lessons Learned

The Great Recession, and resulting private and public sector bankruptcies, served to hasten long-overdue cost-cutting and product rationalization in Michigan. The result is one of the state’s longest economic expansions on record.

The Century Club

From linen services to packaging and construction companies, and from selling furs to machine bearings, DBusiness pays tribute to companies that are 100 years old or more.

Driving Mobility

In an exclusive interview, Mark Fields, president and CEO of Ford Motor Co., peers into the future world of autonomous vehicles, on-demand transportation, and ride-sharing.
Edit ModuleShow Tags

Most Popular

  1. Detroit Denim Co. Opens New Location, Launches Additional Product Lines
    Described as a new manufacturing center in the Motor City, Detroit Denim Co. opens its new...
  2. Detroit’s Metropolitan Building to be Converted into Extended-stay Hotel
    Starwood Hotels & Resorts Worldwide Inc. and two local partners will convert the historic...
  3. 3 Beaumont Hospitals to Offer Non-Emergency Heart Procedure
    Beaumont hospitals in Farmington Hills, Trenton, and Wayne have earned approvals to perform...
  4. Ann Arbor’s TITLE Boxing Club Adds New Owners
    Ann Arbor-based TITLE Boxing Club International— which has grown to 150 boxing clubs from 20...
  5. New Nonprofit Plans to Build Market-rate Homes, Apartments in Detroit
    With the goal of investing in Detroit’s communities and creating increased access to housing...
  6. French Firms Plan Visit to Troy to Study Autonomous Vehicles
    An event focused on connected and autonomous vehicles for French businesses looking to gain...