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Are Foreclosures Increasing or Decreasing?

Original post by the KCM Crew ~

Recent headlines have created tremendous confusion regarding the foreclosure situation in the country. Let’s give an example. Which of these two headlines are accurate?

Foreclosure Starts Plunge to 71-Month Low

Foreclosures Increase for the First Time Since 2010

The challenge is that both headlines are 100% accurate. How can foreclosures have increased for the first time in two years and, at the same time, be at a six year low? Each headline was reporting on a different measurement. Below are the explanations for each of the measurements as perRealtyTrac’s most recent Mortgage Foreclosure Report.

Foreclosure Starts

Foreclosure starts are the first steps taken by the bank after the borrower becomes delinquent on their mortgage payments (default notices or scheduled foreclosure auctions, depending on the state). They were filed for the first time on 77,494 U.S. properties in November. This was:

  • Down 13% from the previous month
  • Down 28% from November 2011
  • At the lowest level since December 2006

Foreclosures (Bank Repossessions)

This is when the lender completes the foreclosure process and repossesses the property. This occurred on 59,134 U.S. properties in November. This was:

  • An 11 percent increase from the previous month
  • A 5% increase from November 2011
  • The first year-over-year increase in bank repossessions since October 2010, when the practice of robo-signing foreclosure documents came to light and caused a sharp slowdown in foreclosure activity in the following months

In the report, Daren Blomquist, vice president at RealtyTrac, explained:

“The drop in overall foreclosure activity in November was caused largely by a 71-month low in foreclosure starts for the month, more evidence that we are past the worst of the foreclosure problem brought about by the housing bubble bursting six years ago. But foreclosures are continuing to hobble the U.S. housing market as lenders finally seize properties that started the process a year or two ago — and much longer in some cases.”

We hope this brings some clarity to the situation.

Short Sales vs. Foreclosures: the Neighborhood

From The KCM Crew,

A foreclosure, in most cases, leaves the block with a vacant home. A short sale does not. A vacant house in a neighborhood creates several challenges:

  1. It doesn’t contribute to the tax base of the region.
  2. It can be an eyesore and bring down the image of the area.
  3. It can be a breeding ground for insects (example: mosquitoes, ticks, etc.).
  4. It can be an incubator for crime if occupied by vagrants or transients.
  5. It can create safety issues for children (example: unguarded pool).

If a short sale is the result rather than a foreclosure, it is much better for the neighborhood.

Foreclosure Roadmap Included in Mortgage Settlement

Posted by the KCM Crew at

There has been much written on the recently negotiated National Mortgage Settlement. Most of the reporting has revolved around the $25 billion that will be issued to consumers and states that have been impacted by the robo-signing scandal of 2010. We want to talk about a different issue addressed by the settlement.

Foreclosures have been slowed to a snail’s pace since the third quarter of 2010. Banks were concerned about the penalties that would be imposed by the settlement and decided to delay the actual seizure of foreclosed properties until the settlement was reached. This group of properties is known as the ‘shadow inventory’ which is currently hanging over the market.

The banks now have the roadmap they can follow which will allow them to repossess a home without penalty. The backlog of these distressed properties will now find their way through the process and be put on the market for sale.

Rick Sharga, executive vice president for Carrington Holding, explains:

“The bottom line is that 2012 will see a lot of foreclosures that should have taken place in 2011 and didn’t.”

How many foreclosures could we be talking about?

The Washington Post reported:

“Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled.”

This leaves three important questions:

  1. When will these properties hit the market?
  2. What impact will they have on housing values?
  3. Which areas will be affected the most?

Every buyer and seller should contact a local real estate professional for the answers to these questions in their region.

Windows of Opportunity Beginning to Close for Sellers

From The KCM Crew ~

We have suggested that sellers who need to sell within the next 18 months had a ‘window of opportunity’ to sell at higher prices. They needed to put their houses up for sale immediately before a flood of distressed properties were introduced to the market. This window is beginning to close. The paperwork challenges faced by banks that caused a delay in the foreclosure process over the last ten months are starting to clear. It seems that these houses are now coming to the market.

RealtyTrac reported in their September Foreclosure Report:

“Default notices were filed for the first time on a  total of 78,880 U.S. properties in August, a nine-month high and a 33 percent  increase from July — the biggest month-over-month increase since August 2007.”

James Saccacio, chief executive officer of RealtyTrac explained:

“The big increase in new foreclosure actions may be a signal that lenders are starting to push through some of the foreclosures delayed by robo-signing and other documentation problems. It also foreshadows more bank repossessions in the coming months as these new foreclosures make their way through the process.”

Diana Olick, of CNBC’s Realty Check quoted a spokesperson for Bank of America:

“ Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners.”

The impact will be felt from coast to coast. New Jersey Superior Court Judge Mary Jacobson recently cleared the way for the top banks to resume foreclosures in the state. The impact this will have on the number of distressed properties can be clearly seen in these statistics reported by Housing Wire:

“In October, New Jersey had the 24th highest foreclosure rate in the country, with servicers filing roughly 5,200 foreclosures that month, according to RealtyTrac. By July, the Garden State’s foreclosure rate dropped to 42nd with just 1,112 filings last month.”

ForeclosureRadar, which handles research in California, Oregon, Washington, Arizona and Nevada, last week reported:

“Foreclosure starts rose in every state.”

Bottom Line

If you currently are selling your home, price it to compel a buyer to purchase it now. Waiting will cause you to compete with an increased number of distressed properties which sell at dramatically discounted prices.

House Prices: Explaining the Recent Uptick

by The KCM Crew,

Several pricing indices have reported that, on a month-over-month basis, home values have ticked up slightly over the last quarter. This has caused some to call the bottom to the housing market – at least from a price standpoint. We must realize that prices are determined by supply and demand.

Demand has indeed shown improvement in many parts of the country. However, the supply side of the formula is being impacted by legal issues. The number of foreclosures coming to market has been slowed dramatically by the courts as the banks still struggle with improperly filed paperwork. This inventory will eventually find its way to the market and again put downward pressure on values.

Bottom Line

If you are selling, there currently is a window of opportunity to get your best price before the distressed properties are released.

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