May's grim headlines have confirmed what Minnesota property owners already sensed: The state's housing market remains in a tailspin even as economy slowly recovers.
Sales prices have sunk to new lows, according to a May 8 story by Star Tribune reporter Jim Buchta. The outlook isn't likely to improve any time soon, with distressed properties dominating the market and a backlog of them still working their way through the system. In April, more than half of all sales in the metro were foreclosures. Nationally, about a third of homes sold were foreclosures, leading many experts to predict a "double dip" housing hit that could threaten a fragile economy.
Overbuilding and a surprising amount of mortgage fraud here certainly contributed to Minnesota's real-estate woes. But the reality is that the mortgage industry's continued foreclosure fumbling is helping fuel a vicious cycle across the nation: declining property values leading to distressed properties, with the resulting flood of distressed properties dragging down values even further.
A financial industry bailed out with taxpayer dollars should be doing everything it can to stabilize the housing market -- something that's in the interest of all homeowners. Instead, it's done too little to help homeowners who are behind but can pay. And instead of expediting foreclosures for those without means -- a key to housing's recovery -- the industry's understaffing, inconsistent practices and "robosigning" documentation scandals have bogged things down.
The industry's ignominious foreclosure practices are finally starting to get the congressional attention they deserve. Minnesota Sen. Al Franken deserves credit for spotlighting the problem.
Franken, along with New Jersey Sen. Robert Menendez, requested an industry investigation by the respected Government Accountability Office (GAO). The report, released this month, was one of two high-profile, highly critical federal reports this spring to call for reforms.
The first report was a joint effort of the Federal Reserve System and two other agencies. It reviewed 14 federally regulated mortgage servicers during the fourth quarter of 2010 and found "critical weaknesses" in document preparation, foreclosure governance processes, and oversight of third-party vendors.
The GAO report highlights the problems documented in the Federal Reserve report and notes that regulation of mortgage servicers (companies that handle payments and foreclosure) fell to various federal agencies. The GAO also notes that national foreclosure standards for the mortgage servicing industry would improve the way they do business.
National servicing standards, if done right, would make the foreclosure process and loan modification more transparent and consistent. Congressional action is needed. Lawmakers and regulators also need to sort out the fragmented oversight that now exists. That's especially true now that a new federal agency -- the Consumer Financial Protection Bureau -- will be operational this summer.
Left alone, the housing market eventually would recover on its own. Thoughtful policy changes, however, can hasten that recovery. The question right now is whether Congress and the regulators have the political will to address this festering problem.