Home Foreclosures

Preface:

It doesn’t take long to find a foreclosed house on any block in any town of America anymore and stopping the “foreclosure plague” is growing to a point of federal desperation. While families abandon homes and scramble to save whatever belongings they can, banks are stockpiling an inventory of vacant houses and finding themselves in a lose-lose scenario. If they sell the houses quickly, they lose a legitimate opportunity to improve their circumstances by not selling the houses at a fair market value, but without selling these “toxic assets” they find themselves drowning in debt.

The effects of this quintessential stale-mate stretch far beyond just the banks and homeowners into the local neighborhoods, cities, and states, as well as the real estate job sector, the contractors and construction workers, and finally the potential consumers. It’s hard to find an area in the American economy not felled by the toppling dominos.

Here at Greenovation, we not only came to realize the burden of the problem and the monumental implications of our solution, but also recognized the opportunity to remove the negative stigma entirely. This bleak foreclosure market can become an opportunity to rewrite the broken paradigm. Our method not only turns the renovation into a profitable endeavor for the business but also a mechanism of mass-market repair and substantial improvement. That is what sets us apart, what sets Greenovation above.

Meet “The Problem”

They say hindsight is 20/20. Well, the market is definitely in a downward spiral. But how did we get in this global financial crisis?

Starting in 2007, forecasts started blatantly warning (not just implying) an impending problem in the sub-prime and foreclosure markets. These markets are based on loans from banks and financial institutions that expanded their lending practice to what should have been under-qualified and high-risk applicants. This large liability base eventually had trouble paying the installments en masse, which led to a metaphorical wildfire or red ink across the balance sheets.

Now, in 2009, we have a situation where homeowner’s are being evicted from foreclosed homes leaving the banks handling the property, which they are not equipped to do. These houses usually fall into disrepair under the supervision of the banks – further lowering the value of not only the foreclosed house, but the neighborhood it resides in.

This problem didn’t exactly sneak up on the world market. In fact, Lehman Brothers Inc. put out an article in the November 2007 edition of MBS Strategy Weekly that shows a foresight was 20/20 as well. Noting the statistics1 in the growing deviation between the Annual Income Growth and the Home Price Appreciation (HPA) index, Prasanth Subramanian and Olga Gorodetsky, the paper’s authors, saw a paradigm shift in not only what used to be a major determining factor for HPA but also the impending ramifications of the parting crevasse. Suddenly, houses were appreciating at a value completely detached from any material support. The home prices were being driven by a temporary economic boom from which many people were seeing larger paychecks and thought they could support the investment. It was after a substantial amount of time passed – let’s say enough to write tens of thousands of sub-prime notes and for the banks to feel confident in the scenario’s continuity spurring further encouragement to even tentative buyers – that the HPA “bubble” popped. The result has been an exponentially growing number of vacant and decrepit houses, which rather than being put back on the market are bottlenecked in bank bureaucracy as the banks and government try to figure out what to do with this growing storm of properties. The most important subtlety here is that a vast portion of the real estate market is in the hands of career bankers, not real estate agents and brokers.

The problems don’t stop when the property is vacated. The note holder or local cities and associations have to bear the burden of maintaining the property in an effort to limit the property’s affect on the surrounding area. These niceties are not free. Liens are added to the debt of the house, which will eventually be deducted from the proceeds to the note holder if the home is ever sold. Often, the banks or the listing agent take it upon themselves to maintain the property with the basics necessary to meet lending requirements and entice buyers looking for a livable home as opposed to a “fixer upper”. The folly here has been in replacing the toilets, faucets, carpets, paint etc with bottom-of-the-barrel-goods rather than spending a similar amount and making the property attractive to the mindset of a growing demographic; green conscious buyers. Such implementations would not be new expenses, but rather an increase in the effectiveness of current fiscal practices.

There is also an appeal to the farsighted contributors, especially the municipalities, in regards to the future Carbon Commodity Trading programs. There are already several programs underway including the “Midwest Regional GHG Reduction Accord (2007) and Bill 32 of California proposing a significant reduction in Green House Gases and a method of incentive being the Cap-and-Trade (Commodity Trading) method. This incentive method allows cities excelling in carbon emission reduction goals will have the option to auction off excess ratings other cities over their standards, adding a possible revenue stream for “greener” cities. The World Bank showed the global carbon market doubled in size between 2006 (its second year in effect) and 2007, making it a $64 Billion market. Of those funds, $50 Billion passed through the Emission Trading Scheme (ETS) market. The ETS portion accounted for 2.1 Billion permits/tons of CO2 equivalent2. Currently the average Carbon Commodity price is hovering around $13 US after a sharp decline due to the state of the economy, and many experts are predicting that green-oriented stimulus will be a central factor in the recovery of the current world economy and a booming market for the future.
 

This synopsis is approached mainly from a United States standpoint, but nearly the entire world market is going through the very same stages of failure. One of the most overlooked commonalities and impediments is the segregated system that is currently being employed. The bank is trying to unload the property without any means of it’s own to do so; the municipalities and Homeowner’s Associations are placing liens and fines against the property for forced minimal upkeep (trash and maintenance); and the real estate agents are losing opportunities to turn things around by being denied access to those very properties due to the recent moratorium. This is the ouroboros; we have three key players who, rather than working together are eating their own tails.

Our Solution »

1. The statistics used by Subramanian and Gorodetsky were provided by Lehman Brothers Inc., the US Census Bureau, and the Office of Federal Housing Enterprise Oversight.

2. Statistics and Values provided by the World Bank and published by Rachel Oliver for CNN on July, 20th 2008 in the Article “Banking on carbon trading: Can banks stop the climate change?”. http://www.cnn.com/2008/WORLD/asiapcf/07/18/eco.carbontrading/index.html