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Housing Market Little Moved by Foreclosure Settlements

by Harrison Stowe on January 15, 2013 · 5 comments

Bank of America

While Americans have felt many shades of ire against big banks since the 2008 market crash, it seems that lending players are finally being held responsible for their transgressions against homebuyers. Recent foreclosure settlements have made efforts to correct against the lending policies of major finance bodies, with both Bank of America and Fannie Mae brought to task for unscrupulous practices carried out within the past five years. However, despite satisfaction some may feel with settling financial indiscretion, these motions may have little impact on the ongoing housing recovery.

According to new analysis from Forbes contributor Stan Humphries, the forward momentum of the housing recovery is less motivated by corrective measures and more so by the overall rallying in the American market. Reporting from last week disclosed that pressure from the Federal Reserve has led to ten big bank players paying $8.5 billion in settlements over assertions of foreclosure abuse. $3.3 billion of this will be divulged in the form of direct payment to citizen borrowers, while another $5.5 will be divested between loan modifications and enhanced forgiveness programs. This arrives as particularly heartening news in the wake of the past two years, where foreclosures have reached record heights and public opinion has hardened against exploitative loan practices.

While the satisfaction from holding predatory lenders accountable may go some ways towards diminishing negative opinions, standing factors point towards these payouts as having a comparatively minimal impact on the health of the overall market. Granting that there has been some question as to whether direct Federal Reserve policy is aiding the recovery, it seems that a broad array of increasingly stable market factors continue to motivate growth in the housing sector. As the Forbes piece details, a close of year Zillow report outlined that U.S. homes gained $1.3 trillion in value throughout 2012. In fact, the United States became a sort of housing market value leader amongst developed economies in FY2012.

How is the Housing Sector Growing?

So what exactly are the factors that are motivating growth in the housing sector? Foremost among them seem to be renewed consumer confidence and mounting interest in purchasing homes. Many otherwise eager homebuyers have held on to their assets in the past half decade and weathered out the recession. Now that our economy is in the midst of a modest recovery, and the housing market in particular seems to be in a state of convalescence, these newly interested buyers may well come out in droves. This, coupled with the currently deflated national value of residential property, could motivate an upsurge in new home closings throughout 2013.

Put succinctly, it seems that new life in the housing market is originating from a sort of chain reaction. The record lowering of interest rates means that first-time homebuyers are in a more comfortable position to take out home loans. In addition, we’re seeing a dwindling percentage of underwater mortgages coupled with a decreasing rate of loan default. While we (hopefully) will be avoiding the rocket-ascendance of real estate values that preceded the 2008 bubble burst, this broad collection of factors seems to be a multi-factor motivator for a gentle recovery. The foundations may well be set for a year defined by high purchase volume and nationwide appreciation in real estate values.

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{ 5 comments… read them below or add one }

Jeff Brown January 15, 2013 at 7:24 pm

Welcome, Harrison.


Harrison Stowe January 16, 2013 at 7:56 am

Thanks Jeff. Great to be on board.


Tracy Royce January 16, 2013 at 2:09 pm

Hi Harrison,

Great article. As much as some have vowed to renting to not partake in corrupted lending practices, the truth is the low prices and incredibly low interest rates bode well for affordability (for those who can actually it afford!)

Might it be noted that the investor buyer pool has GREATLY contributed to the absorption of foreclosures and driving up prices in some markets? Now that the foreclosure & REO mess has been soaked up by the cash crowd, the financed buyer pool feels confident enough to step back into home ownership, at the hands of whatever bank is willing to lend, regardless of bailout, fraud, etc. (PS Morgan Stanley is making a settlement with federal reserve for over 1/2 billion settlement as we speak)

Nothing keeps market cycles cyclical like memory loss. Thanks for the poignant read.


Tracy Royce January 16, 2013 at 2:10 pm

My message was slightly jumbled, forgive the errors. Trying to do 3 things at once doesn’t makes for good, if any, proofreading skills. I think you get my point though :)


Harrison Stowe January 16, 2013 at 5:45 pm

No sweat Tracy, completely get where you’re coming from. And glad you liked the article! It seems like we’re all looking for concrete market technicals to back up our investing decisions. The last thing we’d all like to slip into at this point is any form of ‘irrational exuberance’.


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