In total, over 22,500 properties entered the real estate
owned (REO) portfolio of lenders through foreclosure auctions between 2005 and
2007.  In the Chicago area in 2007 alone,
nearly 13,000 properties with an aggregate auction value of $2.5 billion dollars
became lender owned.  In the first half
of 2008 alone, over 10,000 properties became lender owned.  This was nearly a 98 percent increase over
the first half of 2007.  As the
foreclosure crisis continues, the focus of policy interventions will likely continue
to shift towards dealing with the growing inventory of vacant properties. 

  1. How can lenders and servicers increase efforts to
    reach troubled borrowers prior to foreclosure?     Lenders and servicers must
    proactively modify loans so that borrowers can afford monthly payments over the
    long term and stay in their homes. 
    However, given the growing number of homeowners in distress and the
    unsuitable loans many borrowers received, it is likely that not everyone will
    be saved.

  2. How can municipal governments develop or enhance
    strategies around vacant building ordinances that places additional
    responsibilities and costs on owners of vacant properties?      Many smaller municipalities lack the
    administrative authority to implement more aggressive vacant building policies, but the often complicated ownership status of vacant buildings makes such
    ordinances a challenge to enforce.

  3. How can locally- or regionally-based government or
    quasi-government entities acquire vacant foreclosed properties from
    lenders?      The recently signed federal
    Housing and Economic Recovery Act of 2008 will make $4 billion available to states
    and municipal governments for the acquisition of such properties.   While the act will provide some new resources, additional resources are critical, given the billions of dollars in lender-owned properties for sale in 2008 alone.

  4. What are the best strategies to remove the obstacles
    created by complicated ownership structures and disposition guidelines and
    ensure that REO properties can be purchased in bulk?      With the growth of securitization in the
    mortgage industry, the “lender” who owns the REO property typically is not a
    bank, but often a pool of investors in a mortgage-backed security.  Decisions on the disposition of these
    properties typically are not made by individuals, but by servicers whose
    actions are often limited by loss mitigation guidelines specified in pooling
    and servicing agreements.  Questions also
    remain about the structure such a vehicle would take.  Lenders, municipal governments, and
    regulatory agencies will have to work closely to develop efficient strategies
    for the transfer, management, and disposition of REO properties.

  5. How can community-based organizations play a role in
    the process?      Neighborhood-based
    organizations might be best positioned to monitor on-the-ground activity in their
    neighborhoods, and community residents will be the group most significantly
    impacted by the outcomes of such an effort.  But they can not solve the problem alone.

 

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