There is the faint hope rising in the east that dawn is breaking on the night of foreclosures. California continues to grapple in the dark but a recently released report states that in May less number of pre-foreclosure notices were issued by the lenders as compared to April. The default notices were 43,011 in May, marking 2.5% less from April. A default notice is the first step to the foreclosure process. In Santa Clara County it dropped by 8.5% with 1,291 house owners having receive notices in the previous month. Although default numbers decreased across the state the average units of default posted each day increased by 2.4% counting to 2,009 filings each day.
The data-collecting firm ForeclosureRadar however warned that this should not lead to too much optimism. Perhaps the falls in numbers are harbingers of good days ahead or maybe it is because there was less number of working days in May 2008. It seems however that the foreclosure numbers have reached their peak and soon it will find its level.
The executive director of California Mortgage Bankers Association, Susan DeMars repeated fears that it is too early to read anything positive in the fall of default numbers and whether this will lead to foreclosures tapering off. One reason could be because the lenders are working hard with the borrowers to keep foreclosures at bay. She added, “The industry is committed to reaching out and working with as many borrowers as possible who feel they are in trouble with their mortgages.” But at this stage it is not possible to determine specifically whether the May figures are what they are because of these efforts.
In May lenders repossessed houses worth more than $10 billion. This is a record for a single month. In April the amount was nearly $9.45 billion. The majority of the houses that were foreclosed upon (97%) failed to attract any buyer during the auction. As such the bank had to repossess these. In April 98% of the houses up for auction had to be taken back by the lenders. So in May there was a slight increase in the number of buyers – an increase vital to the health of the real estate economy.
The banks have increased discounts for repossessed houses. Across the state, in May the discount made the house to be valued at 28% less than the loan balance. In April the number had been 25%.
Foreclosures across the nation crossed the million mark during the first quarter creating a record. It is apprehended that worse is yet to come in the forthcoming months.
As per report of The Mortgage Bankers Association of all the loans, 2.5% are in foreclosure. It calculates to affecting 1.1 million borrowers. At the end of the previous year the number had been 938,000 houses. This shows an increase of 2% loans slipping into foreclosure.
Of the loans 1% (448,000 houses) began its entry into the foreclosure zone during the first quarter of the current year. In the last quarter of 2007 the number of houses were 382,000 – calculating to 0.83% that entered foreclosure.
Those who have fallen behind payments are also at a record high – 3 million house loans calculating to 6.4%. These have stumbled on at least one installment. Nearly 737,000 borrowers are behind three months in payment but have not yet been foreclosed upon.
Although these grim numbers had been apprehended it does not mitigate the feeling of depression. There is little hope that the current pace will slow down until perhaps 2009. It might take a couple of years before the menace will actually start retreating to normal levels. The crisis is the result of thoughtless lending and irresponsible borrowing. The problem has been mired with a record fall in the real estate market right across the country. This is the worst thing that can happen to mortgage loans. To add to the cocktail of woes the overall economy is melting down.
The main accusing finger points to the granting of loans to those unable to afford it. It is the adjustable mortgages that are at the root of it all. Nearly four out of ten of the sub-prime loans are either lagging behind or already in foreclosure. Sub-prime loans account for the foreclosures during this quarter.
Simultaneously the bad weather has not totally spared the prime fixed rate loans. Here too sharp delinquencies and foreclosures have been noticed. However the situation in this zone is not so bad as in the sub-prime category. 431,000 traditional loans are in foreclosure and the adjusted rate is 1.2%. This calculates to being more than double the number of 0.5% rate that had been noted a year ago. 1.2 million prime mortgages are at least a month lagging behind that calculates to 3.7% of these loans. It is an increase of 2.6% from what it was a year ago.
Indications from recent reports show that till now foreclosures continue to shake the nation and have not peaked as yet. Most of the areas are showing high increases over the numbers in the previous year. Simultaneously the real estate market continues to tumble. In the middle of the earthquake, house owners are struggling to keep the roofs over their heads. Most of the houses had been bought during the time of the housing bubble when money freely flowed in from the sub-prime ARM mortgages. Only a few years ago bad credit had been no problem. Anybody with a pulse could avail of a mortgage loan.
Foreclosures are undoubtedly painful. But considering the circumstances it became inevitable. Now it is creating new opportunities for many who want to buy houses for the first time or invest in houses for renting purposes to snap up discount bargains. The banks reeling under innumerable foreclosed units and public pressure caused by vacant houses is offering slashed prices for dream houses.
According to the latest figures compiled by RealtyTrac foreclosure filings in April increased by 65% in comparison to April 2007 the three worst offending states are Nevada, California and Arizona with foreclosure rates being 1:146, 1:204 and 1:224 respectively. Foreclosure postings in Arizona shot up by 245% in the first quarter of 2008 from what it was during the same period in 2007. Florida ranked 4th with an increase of 17% in foreclosures from the last quarter of 2007 and a high jump of 178% from the first quarter of the previous year of 2007.
On a year-by-year basis foreclosures shot up in 46 of the 50 states and in 90 of the 100 large metro regions said James Saccacio of RealtyTrac.
The focus of foreclosures is mainly on the owners of houses but the condo owners are also suffering quietly. Most of the figures exclude condos but the latter accounts for about one eighth of the nation’s units. According to National Association of Realtors sale of condos recently are down by 26% from March of the previous year. The single-family house sales are down by 18%. Reduction in condo sales and increase in condo foreclosure have had a negative impact on those who are continuing to stay and are not directly affected by foreclosures. Their individual contribution to association fees are increasing proportionately making it difficult for them to continue with their own mortgages.
With the foreclosure tide surging across the nation with no signs of slowing down, any remedial suggestion is welcome. Jack Guttentag emeritus professor of finance of Pennsylvania University is tacking foreclosures in a novel way.
Guttentag suggests a scheme known as MPI or Mortgage Payment Insurance. It will guarantee payment of mortgage premiums to the lender even if the borrower defaults apart from protection against loss in the case of the loan entering foreclosure. Thus the insurer takes on the entire risk of default but since the interest rate of high-risk loans would be reduced such loans would cost less then the traditional mortgage coverage.
As yet no insurance firm has come up with this offer of MPI and it is only a suggestion put forward by the professor. The idea is pending patent. If the MPI is allowed to roll, it will immediately have an effect in reducing the number of foreclosed units and also the attendant loss.
It has been estimated that approximately 600,000 conventional mortgage loans are in default at present. Taking up each case and trying to solve matters will only make a small dent in the gargantuan problem. There are major hurdles and even if these are removed the entire process will be time and money consuming. MPI makes it possible for comprehensive modifications. The scheme sees to the interest of all the parties concerned – borrowers, insurance groups, investing parties as well as the servicers. If the loan in the traditional category trips then the lender is in a soup – money not coming in plus foreclosure expenses. But if the lender is covered then even if the property is sold at less the loan amount the coverage is there. Till now the various schemes do not give protection against deficiencies although in the current situation deficiency is the rule and not the exception. The MPI gives protection to the insurer as well as to the investor. This will save innumerable borrowers from the clutches of foreclosure.
To bring this scheme into effect will be to change the present mortgage insurance policies to MPI at the prime interest on condition that the monthly mortgage payment will drop by 10% if not more. The borrower would get a chance to improve credit history and all the three concerned parties would be happy.
There is the chance that the investor might face hiccups if the loans cure themselves without reduction of rate. However the loss for this reason would be negligible.
Keeping in tune with predictions, foreclosure sales jumped by leaps and bounds in South Florida. More and more borrowers are failing to come to an understanding with lenders and are succumbing to foreclosures.
In Broward County there were 2,568 foreclosure sales in April 2008 – a five-fold jump over 426 noted in April 207. In Palm Beach County the number of sales in April this year was 785 marking 370% spike over 167 in 2007.
The five years starting from 2000 had seen rising real estate prices and this had caused buyers to overreach themselves thinking that this would continue. They bought houses by taking sub-prime mortgage loans with floating interest. No questions were asked about income and just about anybody with a pulse could avail of the loan. But when the rates began to rise the blow fell. The housing bubble burst making it impossible for borrowers to meet mortgage requirements. To further mire the situation real estate markets tumbled wherein often the value of the house became less than the loan amount.
Foreclosure is a judicial process by which the lender seeks the permission to foreclose when the borrower falls behind 90 days in mortgage payments. The term includes all the stages of foreclosure.
In Broward County during the month of April there were 3,150 delinquent borrowers. Last April the number was 1,135. Palm Beach County was saddled with 1,984 foreclosures this year in comparison to 814 in 2007.
The sharp increase in foreclosure sales indicate that due to the falling real estate market the borrowers are unable to negotiate satisfactorily with the lenders. With more houses coming into the shops there is a crisis in demand and supply with the latter being more than the former. This in turn is causing the price of houses to further fall. The federal government has been compelled to step in but how far the measures will reap benefits only time can tell. Critics say that the government has stepped in too late – the damage has already been done.
Many foreclosure prevention programmes have been launched like the one in West Palm Beach. But considering the size of the problem these are just drops in the ocean. The lenders cannot reach each and everybody. Senior financial analyst Greg McBride says “A lot of home owners are trying to do the right thin, but they’re stuck in the waiting room of the Mortgage ER.”
The Federal Reserves took yet another move to tackle foreclosures. The chairperson of the Federal Reserves, Ben Bernanke gave his assent to the lowering of the benchmark federal funds rate to 2%. It was a quarter percentage drop. At the start of the 2008 it was 4.25%. Dallas Fed president Richard Fisher, and Philadelphia Fed president Charles Plosser disagreed. They did not want the cut in rates.
In a statement the Fed press stated that “the substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.” It also emphasized its concern for inflationary pressures rather than more weakening. This was an indication the rates will not be further tampered with but allowed to remain steady in the forthcoming months.
The chief economist of Societe General in New York cynically commented that the statement was a “soft non-binding pause.” Another economist, James Glassman from J.P. Morgan Chase said that it was not required of the Federal Reserve to make comments about its future course of action. Investors in general were expecting this rate cut. As a result the stocks soared.
It is necessary to bear in mind that the Federal Reserve has slowed down in the pace of cutting rates. The last time it did so was a three quarter percent cut on 18th March. Since September 2007 this is the 7th rate cut. During this period the central bank has lowered lending rates by 3.25%. It decided not to pause to so as to give the economy a boom and to provide coverage against risk. The fear of the credit crunch triggering off a downward growth haunted their actions. The economy as a whole is somehow avoiding recession by using stepping-stones. The commerce department reported that the growth was at a pale 0.6% during the second quarter. But financial experts feel that this cannot go on indefinitely and recession is bound to take over. Henry Paulson, treasury secretary feels the fiscal stimulus measures will act as life belt and bail out the economy.
The money released by the government will give a boost to consumer spending but it will make it difficult to get at the roots of the problem. Labour markets are falling, while gas prices are rising. Good exports are keeping things somehow running.
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Research studies show that far from slowing down the foreclosures have doubled during the first quarter of 2008 in comparison to what it was in the previous year. Falling real estate markets together with tightening of mortgage loans are held responsible for this situation. More and more houses are not being sold off at court auctions.
The three top offending states are Nevada, Florida and California. In California, Stockton has reported the highest number of foreclosure postings in the country. It is 6.6 times higher than the national average according to RealtyTrac.
Figures across the nation show that 649,917 houses were included at least once in the foreclosure listings during the first quarter of this year – 2008. This is 112% higher than the previous year when the numbers recorded were 306,722. The counting also shows that since the last quarter the rise has been higher by 23%. It means that one out of 194 houses have been foreclosed during this first quarter. The first quarter is also the seventh consecutive one registering a rise in foreclosure activity. Except for four states, foreclosures have increased in US. By foreclosure reference is made to all the stages of the judicial process – default and auction sale notices together with bank repossessions.
In the foreclosure mire, Pennsylvania seems to be coming out clean with a drop of 24.4% in foreclosure postings from the previous year. For this the laurels are being awarded to the foreclosure measures taken by the state. Philadelphia and other cities put a hold on foreclosure auctions due in April and enforced other preventive measures. These seem to be paying dividends.
Rick Sharga of RealtyTrac comments that unless the market comes back to normal levels, with people buying properties again, the foreclosure crisis will continue to harass the country. Loans are now no longer easily available to people with shaky credit and there is no significant reduction in down-payment. This is also considerably reducing the number of potential buyers. It is a vicious cycle that will not be easily broken right now.
The recent sweeping waves of foreclosures also indicates that the much hyped foreclosure relief programmes is not having much impact. However HOPE NOW, a help group launched by the Bush government, claims that during the first three months of this year, about 503,000 house owners had been helped by way of mortgage help. However the nature of the aid was mostly temporary.
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There seems to be no respite from the onslaught as foreclosures march on relentlessly across the country.
Ohio continues to be one of the worst hit regions ranking among the top ten offenders. RealtyTrac, noted online tracing agency said that Ohio showed 11,273 in some stage or the other of foreclosure. Foreclosure is a legal process and it starts with a notice sent out to the defaulting borrowing. If this does not produce results and the borrower continues to falter in payments then he or she becomes delinquent. At this point the lender sends a foreclosure notice. Within a certain time dues have to be cleared otherwise the house will be sold at a court auction and the bank will realize dues. If the house fails to be sold off at the auction then the bank takes over possession of the house. Ohio’s figures calculate to one house out of 448 units being in foreclosure. Of the total number of filings 3,742 were notices of litigation, 3,918 were notices of sale and 3,613 were bank owned repossessions.
Ohio occupies the 7th rank among the top ten foreclosed states. This March witnessed an 8% rise from the previous month of February and a huge 37% jump from March of the previous year of 2007. The first rank went to Nevada with one foreclosure for every 139 units. California however was tops as regards the total number of foreclosure listings with 64,711 in March; this read one foreclosure for every 204 houses.
The national rate of foreclosures was one filing for 538 units – an increase of about 5% from February and a whopping jump of 57% from March of the previous year. The Bank repossessions were also rising by 129% and so too were auction notices going up by 32%. Many offending borrowers were just walking away by returning the property to the lenders. This process is known as the deed-in-lieu of foreclosure. It stops the process from continuing on to the auction stage.
The foreclosure virus is spreading the infection to touch all sections of society cutting across socio-economic lines. No longer is the borrower the sole victim. Deserted houses are causing problem for the lenders who do not know how to meet the snow balling rise in meeting foreclosure expenses, maintenance and tax demands. There is no money coming in and many mortgage houses are seeking shelter in bankruptcy.
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Foreclosures have also started to stalk Arizona state in southwestern US. Its largest city and capital Phoenix has not been spared; neither are the other big cites of Arizona - Tucson, Flagstaff, Mesa, Glendale and Yuma. This land of hot summers and mild winters, this paradise of deserts shaking hands with pine forests on mountain ranges is now buckling under foreclosure threats. It is the fastest growing state in the country – having outrun its nearest rival Nevada. Perhaps this success story is one of the main cause of the foreclosure crisis of today. Developers swarmed in trying to make quick profits during the housing boom. But that balloon has now burst causing this grim situation.
Arizona has been sanctioned $1.45 million from the federal funding kitty to tackle the ever increasing number of foreclosures. The amount is a spill off from the National Foreclosure Mitigation Counseling Program. This is the first of its kind that is for the sole purpose for preventing foreclosures from infecting Arizona.
The picture in Arizona is grim. Last month Phoenix lost 2,250 houses to foreclosures. The same number of families were thus affected. Since 1990 this is the maximum number of transgressions.
Thirteen state housing counseling groups will work in tandem with the Arizona Department of Housing to utilize this money. Two other non-profit bodies engaged in the same task will each be sanctioned $60,000 from the total of $1.45 million that has been set aside for victimized borrowers reeling under the onslaught of foreclosures. By next month another new hot line will be set up in addition to the one that is already running.
Apart from this funding the state has expanded its programme related to eviction from and prevention of foreclosures by increasing its own funds from $2.75 million to $4.2 million. An extra amount of $500,000 has been kept for helping those who are in zones where there has been a concentration of foreclosed houses.
Today in March 2008, Arizona ranks 4th in the foreclosure race across the country. Arizona is right in the thick of the foreclosure mess that is choking the nation. Foreclosure activity in Arizona was up by 6%in February 2008 from January of this year. It is double that of February 2007. One out of 264 houses in Arizona is in foreclosure. At all levels the authorities are desperate for solutions.
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Unbelievable but true – despite much hype and platitudes the Foreclosure Prevention Act of 2008 smacks of encouraging house foreclosures. This bill that has involved both Republicans and Democrats includes measures that instead of stopping foreclosures might push it forward. Anybody who purchases a foreclosed unit within a year of the enforcement of the bill will avail of a tax credit of $7,000. The idea is that this will reduce the number of abandoned foreclosed houses waiting to be owned. With sales thus going up the expectation is that the real estate market would get back on its rails. Apparently everything seems logical and clear. But there is more to it than meets the eye. Foreclosures are money, energy and time consuming. Banks, right now, are averse to repossessing foreclosed units after having failed to sell these off in court auctions. Now if it becomes cheaper to buy a foreclosed house than a non-foreclosed one then the options for the buyer are quite straightforward. Costs of foreclosures go down and benefits go down. Lenders will now be in a hurry to foreclose rather than work out negotiations with borrowers. It comes down to getting the house owners evicted. At a time when the nation is struggling to find out ways and means to keep the common man from the streets this is hardly the time to introduce perverse encouragement to lenders – not even if it is minimal. The 41.6 billion tax credit will work at cross purposes with the money ($100 million) the Senate has sanctioned for increasing the strength of foreclosure counseling agencies. Another more objectionable clause in the bill is the $6 billion tax relief to those in the construction industry. This was done under pressure from the building lobby that threatened to withdraw financial support from the election campaign. Thus the bill is dotted with questionable handouts to this or that section. For instance property taxes up to $500 will be waived for single owners and $1,000 for couples. In all probability most of these 28.3 million who will benefit are seniors who do not have any mortgages. This may be considered a comfortable ad-on but hardly touches the main issue of helping people stay on in foreclosed houses and not spill out on to the open streets. The bill also allows the states to sell $10 billion tax free bonds to subsidize refinancing. It is a proved defective non-performing method of solving the problem.
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