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Senate Holds Hearing on Foreclosure Glut

At a Senate hearing titled, “New Ideas to Address the Glut of Foreclosed Properties,” witnesses discussed several possible options for dealing with foreclosed properties and spurring recovery in the housing market.

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Witnesses shared varying opinions on the concept of Fannie Mae and Freddie Mac conducting bulk sales to investors.

Laurie F. Goodman, senior managing director at Amherst Securities, said long-term investors “are the only potential buyers of many distressed homes that are likely to hit the market over the next 5-6 years.”

“Investors need to be part of the solution,” she stated, adding that the purchase of REOs is a good business opportunity for investors as the rental market continues to grow.

When asked if individual families should be given the opportunity to purchase homes at the rate offered to investors prior to the bulk sales, Goodman said the plan would adversely affect the bulk sales.

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Goodman said allowing “cherry-picking” would ultimately lower the value of the bulk sales.

Bob Nielson, chairman of the board of the National Association of Homebuilders advised the government to avoid ""fire sales,"" which would negatively affect prices in the overall market.

Goodman suggested that if there were several large bidders for a particular pool of properties, the pool might not need to be sold at a discount.

However, Stan Humphries, chief economist at Zillow, pointed out that past bulk purchases of FDIC inventory came at a 20 percent discount.

In his statement before the committee, Humphries warned not to “underestimate the market’s ability to fix itself.”

“This, in fact, is already happening,” he stated.

Another topic discussed was offering tax incentives for home buyers. However, Humphries pointed out that short-term tax creditsâ€"such as the homebuyer tax credit offered last yearâ€"generally do not have a long-term impact. He believes the tax credit simply “shifted demand around during the year.”

In addition, Humphries pointed out that it’s particularly difficult to create policies that effectively aid those in need without extending superfluous aid to others at an undue cost to taxpayers.

Humphries categorized homeowners into three categories: those who do not need help, those who are beyond help, and those who could benefit from a small amount of aid.

It is the third group that government policies target, but it is difficult not to spill over into the other two groups. Thus, the expense of government programs often exceeds their effect.