What will it take for TARP to succeed?

In the past month we heard more about home equities in the luxury market continuing to fall. We have also heard some talk about the lower end market potentially bottoming out temporarily. We have even heard reports of bidding wars on short sales in the low end market.

As reported last month by Donna Olick, a Real Estate Reporter at CNBC,

According to TARP oversight panel… the only way to stem foreclosures is principal reductions.          

In the video below, Diana also reports …

• Home equities declined $489 billion in 2009
• Current reports show that homeowners are slashing home prices about 11%
• Of the 650K of loan modifications in the funnel, a lot of the mortgages are not converting …
• So, as we see these loan mods fail, we will see more foreclosures resulting thereof also.
• Moreover, many homeowners in some markets will not see any positive equity for many, many, many years.

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Co-Founder & CEO of Trulia, Pete Flint, although appearing more optimistic, reinforced the fact that luxury market home prices continue to fall; and also stated 22% of homes listed in December have been reduced in price.

I tend to agree with Olick that principal write downs are imperative if the foreclosure problem is ever going see any semblance of equitable resolution. Granted the lenders are not amenable to these write downs at this time. However, as their inventory grows and REOs sit vacant the homes will deteriorate right along with their values, akin to the depreciation associated with holding of personal property such as automobiles and manufactured homes.

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