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Federal Aid for Foreclosure Troubles

Peter Viles is senior producer for Real Estate at LATimes.com. We asked him to join the conversation about the region's real estate market.

In the rush to a bailout deal, this piece of news fell through the cracks last week, but is worth revisiting:

California and many of its communities hardest hit by the foreclosure crisis stand to receive more than $500 million in federal aid over the next 18 months to buy and fix up distressed homes, the Department of Housing and Urban Development announced Friday.

More, from the Los Angeles Times:

The city of Los Angeles is to receive about $33 million directly from the federal government. In the next few months, the city could also get money from the state, which has a pool of $145 million to allocate to communities. With more than 13,000 foreclosed homes in the city, Los Angeles Councilman Ed Reyes warned that the federal funds would go quickly. Los Angeles County is to receive $17 million, and other cities in the county, such as Long Beach and Lancaster, also would get awards.

In Los Angeles, it's not clear whether this gift from the federal government — from taxpayers, really — will be worth the trouble. Foreclosed houses are already selling to private buyers, and they are selling quickly — roughly 100 foreclosed houses are sold every business day in Los Angeles County. Foreclosures account for one of every three homes sold in L.A. County.

At prevailing prices — roughly $200,000 to $300,000 for foreclosed homes — the $33 million in federal funds would buy roughly 130 houses — the same number of homes that private buyers snap up in a day or two across the county. But the city will have to go to some lengths to buy the homes, or at least it should. It will need to establish a procedure that safeguards against favoritism in picking which houses to buy, and guarantees the city pays no more — or less — than market price. The city will also have to come up with a plan to seek bids, hire contractors, and renovate and those homes, and then maintain them while it lists them for sale and sells them. It will be selling into a market dominated by falling prices, which means the city could well lose money on homes the private sector would have happily bought.

What's the point, then, of the city buying the foreclosed houses? Great question.

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