Critics skeptical FHA’s Project Lifeline will save South Florida homes

South Florida foreclosures continued to rise in May. Could a new
effort to stabilize declining home values bring relief? Critics are
skeptical.

The
Bush Administration early this month instated a temporary policy,
dubbed Project Lifeline, to extend government-backed mortgage insurance
and allow the immediate sale of vacant foreclosed properties.

For
one year, the Federal Housing Administration (FHA) will insure
foreclosed properties marketed and sold by property disposition firms
on behalf of lenders. The properties, which must be purchased by
owner-occupants, will no longer be subject to the customary 90-day
waiting period.

The
news is seemingly welcome in South Florida, though there are some local observers with doubts. According to RealtyTrac,
there were 4,874 foreclosures in Miami-Dade in May, up 11 percent from
a year ago.

Of
those 4,874 homes, 979 are real estate owned. Dade County ranks ninth
in the nation in terms of rate of foreclosures. About one in every 196
homes there was in some stage of the foreclosure process.

Broward,
meanwhile, saw 4,449 foreclosures, up 50 percent from a year ago. Palm
Beach County saw 2,616 foreclosures, up 218 percent from a year ago.

Despite
the obvious and continued market blood-letting, Michael Sichenzia, COO
of Deerfield Beach-based Dynamic Consulting Enterprises, a firm
specializing in identifying fraud and financial misconduct, and chief
investigator for the Deerfield Beach law firm of Glinn, Somera, &
Silva, isn’t celebrating over the new FHA program. This move, he said,
doesn’t even constitute a “drop in the bucket.”

“This
gives banks more of a reason to take back properties. It does nothing
to keep people in their homes,” Sichenzia said. “Once again the FHA is
looking out for the banks and ignoring ‘Joe Six Pack.’ The value of
South Florida homes will continue to fall.”

The
Bush Administration disagrees. As the government sees it, this action
will allow homebuyers to purchase homes in much greater numbers, thus
easing the excess supply of unsold homes in neighborhoods across the
country.

“A
glut of foreclosed and abandoned homes harms neighborhoods, frustrates
homebuyers and delays a community’s recovery,” said Brian Montgomery,
Assistant Secretary of Housing-Federal Housing Commissioner.

If it works, it could be a lifeline for South Florida homeowners.

FHA’s
new temporary policy aims to stabilize neighborhoods that are
witnessing high foreclosure rates, in part since many foreclosed
properties remain vacant for months, inviting vandalism and reducing
values of surrounding homes.

Gerri
Detweiler, a credit expert at FreeRateSearch.com — a service created
by mortgage banking to allow consumers to search for mortgage rate
information from multiple lenders — doubts the FHA policy change will
have a significant impact on South Florida home values for several
reasons.

Many
South Florida homeowners are stuck in their homes because they can’t
sell at a price that will pay off their current loans, she said.

“Even
if they wanted to take advantage of an FHA loan to buy a foreclosed
home, they cannot,” she said. “That leaves many current homeowners out
of the equation.”

Then
there’s the credit crunch issue. The vast majority of would-be
first-time homeowners — those who could not afford to buy over the
past few years even with extremely lenient mortgage loan requirements
— are not in a position to buy a foreclosed home with all the
headaches that entails, including costly repairs, she said.

Who
does that leave? People relocating to Florida could possibly leverage
the FHA program. However, Detweiler said, many of those would-be buyers
are waiting to see how low prices can get before they buy.

Perhaps
the buyers in the best position to buy foreclosed home are investors.
But by targeting owner occupants, the proposal rules out non
owner-occupant investors, the most important segment of South Florida
buyers. They cannot take advantage of this program.

“I
highly doubt this program will help stabilize prices or reduce
vacancies by any significant amount,” Detweiler said. “If we are to
stabilize prices, then we need to reduce the number of foreclosures —
not just sell the homes that have been foreclosed upon a little more
quickly.”