Foreclosure rates are on the rise. / Image: The-Lane-Team/Flickr/CC BY-ND

The price of homes continues to fall in the U.S. as foreclosure rates grow. This is good news for home buyers looking for a bargain. However, if you are looking to sell, it may be advantageous to wait a little longer.

FHFA report shows sharp drop

The Federal Housing Finance Agency reports this week that its home-price index fell in the current quarter faster than at any time since 2008. Prices have fallen 2.5 percent in the last quarter, which is a drop of 5.5 percent from last year. The report, however, covers only homes purchased with mortgages provided by Fannie Mae or Freddie Mac. It excludes cash only sales.

Foreclosures remain a key factor

FHFA acting director Edward DeMarco said, “In many local real estate markets, particularly those hit hard by this cycle, foreclosures and other distressed properties are still a key factor in recorded and anticipated future sales and may be delaying price stability or recovery.” The prices of homes in foreclosure are dropping, according to RealtyTrac. The average sales price was $168,321 during the first quarter, which is a 1.89  percent drop from the previous quarter, and 1.46 percent from a year ago. And because foreclosures lower the value of other homes in their neighborhood, they affect the rest of the index as well.

Fewer foreclosures going to third parties

“While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties were sold to third parties,” reported James Saccacio, the CEO of RealtyTrac. During the first quarter, 158,434 homes in various stages of foreclosure were sold to third parties during the first quarter, which is a drop of 16 percent from the previous quarter and 36 percent from a year ago.

Foreclosures rates vary by state

The percentages of houses on the market because of foreclosure varies by state. In Ohio and Illinois it was 41 percent. California and Arizona had foreclosure rates of 45 percent. In Nevada, foreclosures were 53 percent of the market.

Beware of foreclosure scams

This trend has brought out higher numbers of foreclosure rescue scams. These scams involve upfront fees for promises of foreclosure prevention that never happen, leaving the distressed homeowners high and dry. In February the Federal Trade Commission began prohibiting upfront fees to negotiate mortgage reduction plans.

Sources

Wall Street Journal

DS News

Daily Finance

The people who strategically default may be doing so because of their financial savvy. Photo Credit: Kelseyman749/Flickr.com/CC-BY

People who engage in “strategic default,” purposely defaulting on a mortgage when it’s no longer worth the effort, may be more financially astute than other homeowners in default. A recent study indicates that strategic defaulters have higher credit scores than people who stick out a bad mortgage. However, there are not many people who engage in the practice.

Higher credit scores among those who default on purpose

A recent study by Fair Isaac And Company (FICO) found that homeowners who engage in a practice called “strategic default” usually have higher credit scores than normal defaulters, according to USA Today. FICO found that people who strategically defaulted on their mortgages usually had most other aspects of their personal finances in order and took steps to protect themselves. For instance, only 10 percent of strategic defaulters had maxed out their credit cards and usually would open card accounts with new companies before defaulting. That way, they didn’t have to worry about having to get bad credit loans when a default showed up on their credit report.

Many disapprove of the practice

Not everyone approves of the practice of strategic default. A survey by legal website FindLaw, according to NASDAQ, found that six of 10 people surveyed did not approve of strategic default. However, 34 percent of respondents said that default was acceptable if the mortgage was underwater. People 65 and older were more accepting than those aged 35 to 44, who were the least accepting of strategic default. Strategic default makes sense from a business perspective. Homes are assets, and it doesn’t make sense to pay more for an asset than it is worth on the market. However, people often feel a moral obligation to meet commitments such as making payments on a mortgage, car or personal loans of any sort.

Foreclosures slowing

The rate of foreclosure slowed during the first few months of 2011, according to CNN. RealtyTrac announced that in the first quarter of this year, it observed 681,000 filings, which includes foreclosure filings, evictions and realty auction notices. RealtyTrac also observed 215,046 homes that had to be vacated by the residents. A filing doesn’t mean a family has been kicked out, only that a notice has been filed. Both figures were reduced from last year. Overall filings fell 27 percent from 2010, and evictions fell by 17 percent. Strategic default has increased during the recession, but is only estimated to have made up 35 percent of all foreclosures overall.

Sources

USA Today

NASDAQ

CNN

At a recent congressional hearing, the government mortgage modification program was blasted as being a "failure." Image from Wikimedia Commons.

The Inspector General of government bailout programs has labeled the mortgage modification program a failure. Neal Barofsky, appointed to oversee the bailout programs including the Home Affordable Modification Program, blasted the program in a Congressional hearing for being ineffective. More than half a million applicants have gotten their mortgages modified.

Mortgage modification program blasted in hearing

Recently, there was a joint Congressional hearing about whether certain programs in government bailouts had been effective, including the mortgage modification program. The program, which was nicknamed Make Home Affordable, but titled the Home Affordable Modification Program or HAMP, was blasted in the hearing as “a failure,” according to USA Today. Neil Barofsky was appointed as a special Inspector General in charge of bailout programs and funding and told the Congressional oversight committee that the mortgage modification program was not working. He went on to say that an increasing number of people will continue to want the program canceled, “and understandably so.” However, some have pointed to slow moving loan lenders as being part of the cause of the program’s problems.

Call to repeal HAMP

An increasing number of people are calling for the HAMP program to be cut. On the same day that the oversight committee met, three House Republicans submitted a bill that would end the  HAMP program. Doing so would cut $30 billion from unused funding for bailout emergency loans. HAMP was intended to help 3 million to 4 million people avoid foreclosure by modifying existing loans with loan companies, but only 549,620 mortgages have been successfully modified. However, the cash advances lent to banks, more than $341 billion, have been viewed as very successful.

Foreclosures still epidemic

The rate of foreclosure has started to fall in the worst hit areas, especially states like Arizona with higher than normal real estate values, according to CNN. Las Vegas, the worst hit city in the United States, has seen the rate of foreclosure fall by 7 percent over the last year, but one in nine homes there has been in some form of foreclosure activity. However, in a survey of more than 200 metro areas by RealtyTrac, the overall foreclosure rate rose by 72 percent in 2010.

Sources

USA Today

CNN

The auction gavel is due to fall on more homes, as repossessions are skyrocketing. Image from Wikimedia Commons.

The dismal saga of the real estate industry in America continues, and despite the occasional bright spot, there is still plenty of bad news to go around. Sales were boosted for some time by the home buyer tax credit. Foreclosures were barely helped by the loan modification program from the government. Not only did few homeowners actually have their bank loans and homes saved by the program, but repossessions have actually increased. In fact, repossessions increased by 25 percent since last year.

Repossessions skyrocket

The number of repossessions has shot through the roof since 2009. According to a recent report by RealtyTrac, repossessions are higher than have been recorded since the recession began. The number of repossessions in August 2010 was up to 95,364, according to Bloomberg. RealtyTrac has never recorded that large a number of repossessed homes in its existence. The number of repossessed homes, where a homeowner has to vacate the premises and the loan company tries to resell it, have only increased. Since August of 2009, repossessions increased 25 percent.

Foreclosures decrease

However, there is some good news. Overall foreclosure and default notices decreased by 5 percent since July of this year. That being said, there is a difference between foreclosures and repossessions. A foreclosure is when mortgage holders have fallen into default, and the bank begins a legal process to get them out of the homes. There also are ramifications, such as the mortgage holder being responsible for any lost revenue when the home sells. Repossessions are just when the bank or finance company kicks a delinquent homeowner out but doesn’t start any legal proceedings, and just resell the home.

Foreclosure inventory increasing

There is an incredible stockpile of available homes, some at discount prices. It isn’t as if you can buy a home with a small cash advance, but if you can get the financing, a good home can be acquired at a great price. As it stands today, one in every 381 homes in America has received a foreclosure notice.

Sources

Bloomberg

A restaurant in New Orleans suggests "Foreclose on the Banks." Image from Flickr.

The media and Uncle Sam want us to believe that times are getting better and that we are crawling out of the recession. In fact, there are some economic indicators that the economy is starting to come around.

The last few weeks have provided an increase in consumer spending, a slight decline in the unemployment rate, and the Dow Jones even broke 10,000. However, this may not be enough of a change to get excited yet. There are major economic indicators that are not providing such positive results.

The high rate of foreclosure

The 3rd quarter of 2009 has seen a record number of homes in some stage of foreclosure. The total number of foreclosures for this period was 938,000 compared to 890,000 for the previous three months. It is estimated by RealtyTrac Inc. that the total number of foreclosures for 2009 will exceed the 3.5 million mark. This is up from 2.3 million for 2008.

Gradual increase in total foreclosures

The pattern for all of 2009 has pointed toward an ever increasing number of foreclosures. Each quarter this year has provided even more staggering numbers than the quarter before it. The first quarter ended with 803,489 which was an increase of 9 percent over the last quarter of 2008. This was followed by an increase of 10.5 percent in the summer months and a 5 percent increase the past quarter.

Total foreclosure filings

The indicated foreclosure rates include default papers, auction sale notices and repossessions. These numbers are being partly blamed on the unemployment rate that is at a 26-year high.

Another major factor of this rate is that housing prices have plummeted, and some homeowners are severely under water – meaning they owe more than their homes are worth. These combined factors can remove the incentive for homeowners to keep up with mortgage payments.

The Government’s solution

The Obama administration has implemented steps to try to curtail home foreclosures from plummeting even further out of control. These steps have been aimed at encouraging financial institutions to offer mortgage modifications to those homeowners that are distressed. One of these programs is Hope Now, an organization set up to assist with mortgage modification negotiations.

Obama announced the beginning of October that 500,000 homeowners have been assisted by the government’s mortgage relief effort. While this is certainly a milestone that should be recognized, this help has been provided to 500,000 distressed homeowners out of the over 2.5 million homeowners that have faced foreclosure so far in 2009. The problem is that the rate of new foreclosures exceeds the rate of those that have been assisted. “The sheer scale of the problem is preventing the loan modification programs from having the kind of impact we’d all like” said Rick Sharga, RealtyTrac’s senior vice-president for marketing.

Some areas have seen improvement

While the National numbers are up the rate of foreclosures for some states are actually on a decline. New York has reported a drop in the amount of foreclosures for the third quarter of 2009. The overall numbers of foreclosures for the third quarter in New York were up 19 percent over the same period of the year before, but they are actually down 10 percent from the rate of the previous quarter.

Other states have seen signs of improvement as well. The first quarter of the year, California and Florida had the highest number of foreclosures. As of the third quarter they are ranked third and fourth with Nevada topping off the list.

September’s foreclosure rates are lower

RealtyTrac reported that the number of foreclosures nationwide for September were 344,000 down 4 percent from a month earlier. However, this number is still the third-highest month since the report started in early 2005. It was also the seventh straight month in which more than 300,000 properties filed foreclosure. These numbers may imply that the peak has been reached and the turn-around is slowly beginning. Only the rest of the year will indicate if this trend continues.