The domestic housing crisis was the first domino. The ensuing shock wave continues to reverberate through our nation’s economy resulting in depressed home values, a stock market that rivals the most terrifying roller coaster and persistent and debilitating unemployment. Recently, in what I believe to be a brilliant move, the FHA requested assistance from industry in order to generate ideas to solve one of the core problems dogging our economy – the foreclosure crisis.
The FHA has 248,000 foreclosures currently on the books. That’s roughly one third of the 800,000 total repossessed residential properties on the market today. These unoccupied homes contribute to an over saturated market and help to hold home values down. The demand for homes dips with each uptick of the unemployment rate. The way out of this morass is to develop a solution that will decrease the glut of housing while at the same time spurring employment throughout America. The FHA should be applauded for seeking inspiration from the “boots on the ground” component of the residential real estate sector. The agency has displayed the type of forward thinking that it will take to reanimate America’s fiscal well being and bring the overall economy back to full strength and beyond.
Arc Adaptus, LLC recently submitted its proposal to the FHA and Department of Treasury detailing a method to reduce the amount of FHA owned foreclosures currently on the market and entering the market. The company’s plan improves the FHA’s loss recoveries compared to individual retail foreclosure sales and includes potential tax payer savings of over $5 billion. The Arc Adaptus, LLC proposal further ensures neighborhood stabilization in terms of home values and maintains a rental housing supply that appropriately transitions renters to home owners where feasible.
The FHA foreclosed properties are a burden on the American taxpayer. According to The Joint Economic Committee of Congress these properties cost approximately $50,000 each in terms of holding, maintenance and upkeep costs throughout the FHA’s repossession life cycle. State and local governments lose an additional $20,000 per property when lost tax revenue is taken into account.
Arc Adaptus, LLC has proposed the FHA Investor Financing Initiative, a bold plan that combines temporary investor incentives with provisions that will improve the FHA’s loss recovery of tax payer dollars currently tied up in federal foreclosed properties. The plan incentives include low interest government insured financing and repair loans for investors willing to purchase lots of 25 or more properties from the FHA. The proposal also includes financing techniques designed to promote neighborhood stabilization and investor cash flow.
Foreclosure prevention is another component of the Arc Adaptus, LLC plan. The company encourages the FHA to strengthen its efforts to work with homeowners prior to foreclosure. With close to 1 million foreclosed properties on the market nationwide the tax payers, distressed home owners and the economy benefit from sustainable foreclosure prevention strategies.
The housing sector was, in large part, the cause of the nation’s current economic circumstances. The FHA’s leadership can be the key that unlocks economic revival in America. Plans such as the one proposed by Arc Adaptus, LLC will reduce a substantial portion of the total REO and distressed property inventory. The result of less supply will ripple through the broader economy in the form of more demand for local contractors, suppliers and manufacturers. The impact won’t end there but will continue by creating demand for new homes once fewer existing homes are on the market. This will enhance and accelerate housing and construction related job creation in an effort to keep pace with renewed demand. Let housing be the beacon that leads the way out of our economic darkness.