Tuesday, November 18, 2008

By J.N. SBRANTI
jnsbranti@modbee.com

last updated: July 29, 2008 09:11:24 AM

President Bush is expected to sign housing bailout legislation this week that could give Northern San Joaquin Valley agencies perhaps $120 million to buy foreclosed homes.

Details of how the $4 billion federal program would work are sketchy, but local real estate experts predict that the new government venture could do more harm than good.

The Housing and Economic Recovery Act of 2008 passed the House and Senate last week. One of the provisions sets up "emergency assistance for the redevelopment of abandoned and foreclosed homes."

That money, a small piece of the housing rescue package, is supposed to go to state and local governments in regions with the highest percentage of foreclosed homes, subprime mortgages and delinquent loans.

San Joaquin, Merced and Stanislaus counties rank atop all three of those less-than-enviable lists. During the past year, more than 17,000 of the region's homes have been lost to foreclosure.

Exactly how that proposed $4 billion would be divided hasn't been determined, but if it's proportional based on foreclosures, San Joaquin could get $60 million, Stanislaus $40 million and Merced $20 million.

That's because the latest statistics show that about 1.55 percent of the nation's foreclosures have been in San Joaquin, 1.04 percent in Stanislaus and 0.53 percent in Merced.

As envisioned by lawmakers, that cash is supposed to be spent purchasing foreclosed houses.

"Hopefully, this will make things better," said Janie McInerney, communications director for Rep. Dennis Cardoza, D-Merced, who supported the legislation.

McInerney said buying foreclosed homes should help communities by reducing the glut of homes for sale and fixing up vacant houses, some of which have deteriorated into health hazards, eyesores and crime magnets.

After buying the homes, McInerney said local governments "can do with them what they want."

The bill, House Resolution 3221, proposes the properties be rehabilitated, then resold or rented to low- and moderate-income residents.

"Anything would help," said Aaron Farnon, a Stanislaus County associate planner who oversees housing assistance programs. He said there are long waiting lists for subsidized rental housing in the county, and government acquisition of foreclosed homes could increase that rental supply.

Farnon said county officials haven't started considering how they might spend the money because details about the new program are just emerging.

Local governments shouldn't get their hopes up about the $4 billion doing much to solve the region's housing crisis, warned foreclosure expert Sean O'Toole, who runs ForeclosureRadar.com.

"It's a joke. It won't even make a dent," O'Toole said. "It's a complete government boondoggle."

During the past year, O'Toole said lenders foreclosed on nearly $6.8 billion worth of home loans in San Joaquin, Stanislaus and Merced counties. So giving local government $120 million to buy those homes "is meaningless."

Modesto real estate leaders don't see much merit in the plan, either.

"It's not going to help solve any problems at all," said Mike Zagaris, president of PMZ Real Estate. "It's an act by politicians who are trying to get re-elected. It has little to do with helping people and will only, in the end, contribute to our national budget deficit."

Zagaris said home sales have picked up throughout the region without government intervention.

"The market does work, and (housing) inventory is being cleared," said Zagaris, noting that reduced home prices have help buyers enter the market.

Once the government starts buying foreclosed properties, "it's going to drive home prices up, and we're going to see fewer and fewer buyers getting great deals because of it," predicted John Melo, who heads Century 21 M&M and Associates.

Besides, Melo said, the federal funds won't be enough to make a real difference.

Here's why: Say Stanislaus agencies get $40 million to spend. That would buy about 200 median-priced homes. More than 8,600 homes in the county face foreclosure or have been repossessed by lenders.

"It's an election year," said Melo, explaining why he thinks Congress passed the bill. He said the money would have been better spent a year ago "by doing something to help people stay in their homes."

While the federal funds might not do much to turn around the housing market, they could be spent strategically to benefit targeted neighborhoods, O'Toole suggested.

"I would look for areas where there's potential for redevelopment," O'Toole said. "Look for places where we can add long-term value to our community. ... This is an incredible opportunity for cities to rebuild and get rid of blight."

The bill, for example, allows for foreclosed homes to be purchased, then demolished.

"Don't forget about the power of the bulldozer," said O'Toole, noting how the cleared lots could be redeveloped for better uses. "We might as well use these funds for things that ultimately will make a difference for the better public good."

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.

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