Many lending institutions are facing a large inventory of foreclosed properties. Many of them have sat vacant for lengthy periods of time and have fallen into disrepair, vandalism and theft or even fraud in some cases.
There have been many ideas presented, but the growing inventory, limited resources and buyers are extending the months supply of inventory (MSI). Currently, the MSI for Chicago ending in June 2011 was 5.8 months for single family housing in Chicago, and 8.1 months for attached housing.
One of the initiatives previously discussed was renting out homes. This will reduce vacant / abandoned properties on the market, create income and will attract the growing segment of renters on the market. HUD has previously tested this concept in several markets, Chicago being one of them. One of the biggest obstacles so far has been the resources to manage the large inventory of properties.
Bank of America is planning a new collaboration with the city of Chicago to address possibly 150 vacant and abandoned properties in the area. They have already held an outreach event and added a customer assistance center in the area to help address concerns.
These initiatives, BoA hopes, will “provide convenient opportunities for customers who are having difficulty making their mortgage and other credit account payments to receive face-to-face counseling, on-site processing and underwriting of mortgage modification requests and other assistance.”
Part of the discussion revolves around:
- Register properties with the city when the mortgage is delinquent and has been identified as vacant and abandoned.
- Identify up to 150 properties that will be referred to a new Cook County vacant and abandoned building court call in an effort to speed up the foreclosure process and return the properties to stable, productive use.
- Contribute funds toward the city’s costs of demolishing deteriorating buildings on the donated properties.
- Donate foreclosed / vacant condominiums to the Community Investment Corp., a non-profit entity to help grow affordable rental housing.
These actions seems to either address borrowers who have started falling behind in payments, or once a property has been foreclosed on, not the period in between the two during which a property might be listed as a short sale, which may help lessen the foreclosure cost and inventory. Some lenders have been scrutinized as having a difficult approval process for a short sale. This is sometimes due to liens, contingencies or requirements for insurance. Some short sales can take not only weeks, but months to close.
With tighter lending scrutiny, and many properties needing funds to address construction / repair, many of these properties may sit even longer on the market and incurring further damages.
Depending on the results from these initiatives, other lenders may follow or offer alternative options to help address the current inventory.