Are Banks Hiding Foreclosures?
Banks are keeping houses out of foreclosure. I was talking about this in a previous post, but my point there was to remind you to take advantage of falling mortgage rates.
(In case you forgot, it's a good time to refinance. Of course, buying a new home is another thing. If you're thinking of taking advantage of low mortgage rates by buying a new home, you need to be aware of the potential danger of further drops in house prices. While we can't predict this with certainty, I think it's a fair assumption that, for much of the country, the bottom in housing is still somewhere lower than what we've seen so far.)
Foreclosures are one factor keeping house prices down. Even though the rate of foreclosures is increasing, we're still seeing banks "hiding" a lot of foreclosures.
The CEO of RealtyTrac, James Saccacio, recently said: "The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market."
The fact that Mr. Saccacio spoke so bluntly shouldn't surprise or disturb you. After all, RealtyTrac publishes the largest database of foreclosed properties in the country. The more people who believe there might be opportunities to buy a foreclosed property at a big discount, the more potential customers Mr. Saccacio might interest in his company's services.
But RealtyTrac isn't a lone voice in the wilderness. Lending Processing Services notes that, "foreclosure starts for loans owned by the Government Sponsored Entities (Fannie Mae and Freddie Mac...remember them?) are at an all-time high...Total delinquent and foreclosure inventories remain at historically elevated levels...two loans are deteriorating in status for every one loan that improved."
By the way, what really struck me in LPS's comments was the fact that Jumbo and Agency prime mortgages experienced the greatest percentage increase since January 2008. Jumbo and prime are - as the description indicates - larger mortgages and therefore typically owned by wealthier people on expensive properties.
What about HAMP? You remember HAMP, don't you? That's the government's Home Affordable Modification Program? That program was to let people "re-structure" mortgages so that people could avoid foreclosure. The idea was to work with banks to reduce monthly payments so that people would be able to afford to continue paying their mortgages.
Unfortunately, what really happened is that, first of all, there was little interest in the program on the part of people defaulting on their mortgages. Secondly, people who do re-structure wind up defaulting again, about six months into the program. And, indeed, the LPS data shows that the largest percentage of GSE foreclosures are coming from loans that are six or more months behind on payments.
So what we seem to have is an ever-increasing number of foreclosures, even with government emergency rescues efforts.
Add to this the growing phenomenon of people who simply stop paying their mortgages, yet continue to live in their homes. You may have caught something about this in the news. What you may not have seen is that there are now law firms soliciting people whose mortgages are underwater (the value of the mortgage exceeds the value of the home). Their pitch is that they will keep defaulting homeowners in their homes for the maximum amount of time so that they can simply live mortgage/rent-free.
(Can you understand why this is tolerated by the legal profession? I don't. Doesn't it strike you as unseemly, if not unethical? On the other hand, maybe we shouldn't be surprised by this sort of behavior.)
To all those foreclosures from people who signed up for mortgages they couldn't afford and from people who are unemployed and can't afford their payments, you can now add thousands (I don't know how many - tens of thousands?...more?) of people who can afford their monthly payments, but are now exploiting the housing disaster by not paying their mortgage - simply for profit.
(Oh, and apparently these folks are well aware of the fact their credit rating will suffer when they don't pay the mortgage. They just don't care. They rightly believe that they'll be able to rent for a while - until they can "repair" their damaged credit. Unbelievable.)
So why are banks keeping houses out of foreclosure? We'll take a closer look in our next post...
(In case you forgot, it's a good time to refinance. Of course, buying a new home is another thing. If you're thinking of taking advantage of low mortgage rates by buying a new home, you need to be aware of the potential danger of further drops in house prices. While we can't predict this with certainty, I think it's a fair assumption that, for much of the country, the bottom in housing is still somewhere lower than what we've seen so far.)
Foreclosures are one factor keeping house prices down. Even though the rate of foreclosures is increasing, we're still seeing banks "hiding" a lot of foreclosures.
The CEO of RealtyTrac, James Saccacio, recently said: "The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market."
The fact that Mr. Saccacio spoke so bluntly shouldn't surprise or disturb you. After all, RealtyTrac publishes the largest database of foreclosed properties in the country. The more people who believe there might be opportunities to buy a foreclosed property at a big discount, the more potential customers Mr. Saccacio might interest in his company's services.
But RealtyTrac isn't a lone voice in the wilderness. Lending Processing Services notes that, "foreclosure starts for loans owned by the Government Sponsored Entities (Fannie Mae and Freddie Mac...remember them?) are at an all-time high...Total delinquent and foreclosure inventories remain at historically elevated levels...two loans are deteriorating in status for every one loan that improved."
By the way, what really struck me in LPS's comments was the fact that Jumbo and Agency prime mortgages experienced the greatest percentage increase since January 2008. Jumbo and prime are - as the description indicates - larger mortgages and therefore typically owned by wealthier people on expensive properties.
What about HAMP? You remember HAMP, don't you? That's the government's Home Affordable Modification Program? That program was to let people "re-structure" mortgages so that people could avoid foreclosure. The idea was to work with banks to reduce monthly payments so that people would be able to afford to continue paying their mortgages.
Unfortunately, what really happened is that, first of all, there was little interest in the program on the part of people defaulting on their mortgages. Secondly, people who do re-structure wind up defaulting again, about six months into the program. And, indeed, the LPS data shows that the largest percentage of GSE foreclosures are coming from loans that are six or more months behind on payments.
So what we seem to have is an ever-increasing number of foreclosures, even with government emergency rescues efforts.
Add to this the growing phenomenon of people who simply stop paying their mortgages, yet continue to live in their homes. You may have caught something about this in the news. What you may not have seen is that there are now law firms soliciting people whose mortgages are underwater (the value of the mortgage exceeds the value of the home). Their pitch is that they will keep defaulting homeowners in their homes for the maximum amount of time so that they can simply live mortgage/rent-free.
(Can you understand why this is tolerated by the legal profession? I don't. Doesn't it strike you as unseemly, if not unethical? On the other hand, maybe we shouldn't be surprised by this sort of behavior.)
To all those foreclosures from people who signed up for mortgages they couldn't afford and from people who are unemployed and can't afford their payments, you can now add thousands (I don't know how many - tens of thousands?...more?) of people who can afford their monthly payments, but are now exploiting the housing disaster by not paying their mortgage - simply for profit.
(Oh, and apparently these folks are well aware of the fact their credit rating will suffer when they don't pay the mortgage. They just don't care. They rightly believe that they'll be able to rent for a while - until they can "repair" their damaged credit. Unbelievable.)
So why are banks keeping houses out of foreclosure? We'll take a closer look in our next post...
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