Foreclosure and Its New Ugly Face

Official portrait of Federal Reserve Chairman ...

Official portrait of Federal Reserve Chairman Ben Bernanke. (Photo credit: Wikipedia)

With all the money magazines, realtor sites, and banking politicos hawking the foreclosure fiasco these past four years in the United States, it does not take an understanding of rocket science to realize that the falling values in the housing market would eventually make the buying of homes cheaper than the fair market value of renting the same property. So, blogs are popping up all over the internet about how it is now once again cheaper to own than it is to live in a rental, as if this new revelation is going to cause an immediate end to the housing problem.

The truth of the matter is this. There is still a glut of foreclosure homes on the market, and it will remain that way for years to come. The same problem that caused homeowners to default on their loans, the fact they lost the income necessary to pay for the inflated value of their homes, still exists. The homeowners did not miraculously manufacture replacement income. Most who recovered their income only recovered a portion of the income they once enjoyed to maintain the lifestyle they had come accustom to living. That means, for the lucky ones who have gone back to work, they are now underemployed, making far less than what was needed to live in the ‘Promise Land.’ Many of the same defaulters have not yet gone back to work and are lost in the current shuffling of statistics in a wonderland of denial.

Enter the Federal Reserve Chairman, Bernanke. Bernanke figures the answer to the foreclosure problems is to turn the foreclosure properties into property that is temporarily rental. After all, according to the latest statistics, asking prices for homes declined 0.7% over the past 12 months through March and those properties that were rental rose 5% during the same time frame.

Bernanke has recently set out new policies for banks that decide to rent out foreclosed homes. These new Federal Reserve policies proposed by Bernanke  now permits the rental of foreclosed properties to tenants “in light of the extraordinary market conditions that currently prevail.” This new policy clarifies that banks, otherwise required to sell off the properties, more quickly can turn to rental as a strategy.

Banks can rent the properties now “without having to demonstrate continuous active marketing of the property provided that suitable policies and procedures are followed.” This new policy is a significant change in the way banks have had to deal with properties that fall into foreclosure, and from this writer’s point of view, might provide a glaring new ugly face for the foreclosure crisis.

An inordinate number of rental properties has historically been a signal that a neighborhood is in transition, meaning the neighborhood is aging. Once dominated by new construction and home owners, the older neighborhoods that are in transition are dominated by renters who do not always have the incentive or ability to keep up the property to the standards the community once enjoyed. As a result many times, neighborhoods can decline.

In the recent movie, Slumdog Millionaire, one lucky winner of the government’s contest escapes the slums while the government ignores the rest who are permanently locked into their predicament within the slums. Life moves on while the rich get richer and the poor get poorer.

Bernanke ignores the already squeezed defaulters while he encourages the banks to get richer. Talk about an ugly new face.


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