Millions Spent To Address Foreclosure Crisis in Orange County Going Down The Drain

October 13th, 2008 | Tags: Foreclosure Crisis

Congress has sanctioned $28 million to Orange County in an effort to mitigate the foreclosure crisis. But the use of the money in bailing out the lenders equates to allowing the funds to go down the drain.

$4 billion is the amount set aside for states and counties as well as cities to tackle the foreclosure problem. Orange County as been apportioned $28 million. Some say it is a federally sanctioned massive waste. The local governments will use the funds to purchase foreclosed houses, refurbish them and sell them to those who come from the low-income bracket.. Thus the government will focus on the localities where there is a concentration of foreclosures having the most people with low income.

The payment schedule will depend on the appraised value less a discount of about 5% of the single unit or 15% on the purchase of a group of houses from one lender. The bank will sell to the county only when it knows that the house is a dud in the open market. It has nothing to do with appraisal – the property is worth only what the buyer is ready to pay. Since the ordinary buyer is not going to pay, the banks will be relieved and happy to sell off the white elephant at an inflated rate to the county. The value of the house will start going down following the pattern of the market.

So the real beneficiaries of the deal will be the lenders. They will sell off a unit for say $100 whose current value is $70 today and will be $50 tomorrow. Perhaps the only reason why the houses have any value whatsoever is because the government has lots of dollars to play around with.

The story will not end with the buying of the foreclosed house. Money will be showered to renovate it. Since it is the government’s money there is no doubt that more will be spent than what a private investor would have otherwise invested. Now this made up house has to be sold. The houses will be tentatively valued at $200,000 but to qualify for the mortgage the applicant must have an excellent credit history and be able to make a down payment of 20%. People with that kind of money will not be buying these types of houses.