Should Foreclosures Be Outlawed? Laws, Jobs, and Other Real Estate Musings

by Simon Lindsay on Foreclosure Crisis

The real estate market has been up and down so many times many of us feel like we’ve been on a wild, bone-jarring rollercoaster. Homeowners definitely feel that way; some in California have even starting considering the possibility of doing something drastic to rectify problems in the market – like ban foreclosures.

That’s right – a citizen has put forth a petition in the state of California calling for an outright ban on foreclosures in that state. Instead, as the proposed Foreclosure Modification Act stipulates, lenders would be required to enter into loan modifications with the homeowner. According to the sponsors, this is because lenders rarely engage in helpful and mutually-beneficial loan modification arrangements with homeowners. As a result, thousands lose their homes and the surrounding area’s housing prices take a hit.

The bill still has a ways to go – it needs a little over 807,000 signatures to appear on the ballot, and even then it is not a foregone conclusion that it would be approved. But nevertheless, it is an interesting take on an issue that has reared its head over the past few years. Should foreclosures be outlawed?

It is hard to imagine the government actually mandating that private lenders do anything with money they’ve loaned to homeowners. Doing so could create a dangerous precedent, but it is intriguing to contemplate. The federal government has already created incentives for homeowners to engage in loan modification programs, and state governments, under the Constitution, probably would have the legal authority to mandate the same.

It is probable that the act would have unforeseen consequences that would be detrimental to the market as a whole. This act is one we will follow in the months to come.

Jobs Surge; Unemployment Rate Dips

It was revealed today by the U.S. Department of Labor that unemployment fell slightly, from 9.2% to 9.1%. The economy added a net gain of 117,000 jobs, and the streak of positive gains grows to seven months in a row.

While this appears to be good news, some of the positive results cover up negative ones. Take, for example, the fact that one reason behind the drop in the unemployment rate is because many simply gave up looking for jobs – which removes them from the official government measure of 9.1% (which is called the U3 indicator).

Plus, consumer spending has become stagnant lately, and there are fears that we might move into a double-dip recession.

What does this mean for real estate? In the long run, prospects for a resurgence in real estate value are still very good. In fact, very little can really diminish those prospects; in the end, the market will recover. Whether or not it does so within a year is anyone’s guess. You may have to extend the timeline, but the end result will remain the same.

The next few months should be exciting. We will find out more about the strength of the economy, and will see if California will actually take the drastic step it is considering. Stay tuned.