Bank Foreclosures Blog

The $700 billion Troubled Asset Relief Program was originally intended to purchase troubled mortgages and securities to stem the flow on foreclosures.

However, in a U.S. Congressional committee hearing, Secretary Henry Paulson of the Treasury Department has announced that the fund would be more beneficial to the nation by investing it in banks and financial institutions than purchasing mortgage loans in danger of foreclosures.

With the approval of President Bush, the Treasury Department would pull out TARP funds off the troubled mortgage loans market.

With this development, John Paulson, a hedge-fund manager who owns Paulson & Co. in New York, plans to start buying loans from mortgages in danger of foreclosures. With $36 billion in assets, Paulson is seeing a big opportunity in this market, where ABX indexes have fallen 35 percent. Other investors are saying that this is perfect timing for Paulson, with the TARP program already pulled out from the market. With Paulson buying in, many investors might join in this bandwagon of purchasing foreclosure properties.

John Paulson have profited last year by purchasing credit instruments against subprime mortgages. These credit default swaps on mortgage assets rise in value when the risk of foreclosures increases, which is more evident with subprime lending. Subprime lending has been a significant factor in the case of several foreclosures in California and other states.

While other fund managers are suffering a bad year in 2008, Paulson’s firm has gained 29 percent, after profiting six-fold from last year. He is expected to gain more with this new venture.

While Democrats have criticized Henry Paulson for delaying efforts in stopping the flow of foreclosures with the way the TARP money is being handled, John Paulson has defended his namesake. Paulson has lauded the efforts put forth by the Treasury Secretary and his willingness to change his views depending on the situation.

With the mortgage crisis caused by the mortgage blowup that has been brought about by increasing number of foreclosure properties, lenders and government agencies have found out that loan modifications are a mixed benefit for them, and it is the best possible solution for the banks and the consumers.

Loan modifications require a lot of effort. Though it has few requirements, its guidelines are kind of vague. Also, training bank agents on how to deal with modifications is hard since every case is different from the other. The entire process of loan modifications is time consuming, giving headaches to the mortgage industry.

The up side of the loan modifications for the lenders is that, their records will not show bad debts but show active and paying loans. Since investors prefer banks with less to no pending foreclosures and bad debts, banks make an effort to show profits instead of loan failures on their records to get customers.

Sometimes, the process of loan modifications is prolonged by consumers trying to negotiate on their own since they are not knowledgeable enough about it. Without financial counseling, a loan modification might be useless after a few months, making the homeowner ineligible to loan modification. This makes it better for lenders to negotiate with a professional negotiator because it streamlines business, it gives most of the consumers the best possible loans, plus it makes the entire process easier. Also, what makes it good to deal with professional negotiators is that they are open about the feasibility of the modification of the borrower.

What upsets the entire loan modification process and the industry as well is actually those negotiators who do it themselves and does not understand RESPA, TILA, and banking regulations governing the modifications of home loans.

Consumers facing foreclosures must be careful and diligent as they attempt to negotiate for possible loan modification.

The median price of U.S. home resale plunged to an unprecedented 11.3 percent to 183,300 from 2007, and is expected to continue decreasing over the next few months due to worsening credit conditions and foreclosure properties. This is the biggest decrease on a year-over-year basis since records in 1968 began. According to The National Association of Realtors, resale fell 3.1 percent in October to a yearly rate of 4.98 million units.

The Midwest has been leading falling home prices with a 6 percent drop. This is followed by a 3.2 percent fall in the South, a 1.6 percent drop in the West, and 1.2 percent decrease in the Northeast. In total, resales have plunged at a rate of 4.96 million this year. Experts predict a resale decrease to a national annual rate of 4.5 million to 5.2 million.

Meanwhile, the resale of single-family homes dropped 3.3 percent to a 4.43 million annual rate, while condominium and co-op resale decreased 1.8 percent to a rate of 550,000.

The problem has not been helped by increasing number of repossessed houses. According to foreclosure tracking firm RealTrac Inc., falling home prices have increased foreclosure filings to 25 percent last October compared to 2007.

U.S. homebuilders have also been affected greatly by increasing foreclosures. Figures show a 65 percent drop in home construction in October from a high in January 2006. Building permits have also fallen to its lowest since records began in 1960.

Stuart Miller, chief executive of the second largest U.S. construction firm, Lennar Corp. declared that foreclosures are dominating the homebuilding world and are more intense than in the past.

With the worsening housing scenario, it is unlikely that home resale will increase. Chief U.S. economist Maxwell Clarke from the New York-based IDEAglobal says that even more homes are expected to foreclose. Couple this with the already large number of homes on the market, and the possibility for improving housing market conditions seems nil.

With 12,681 homes in various stages of the foreclosure process, Illinois foreclosures soared by 31 percent in October this year from the same month in 2007, as reported by online foreclosure tracking firm RealtyTrac. The homes are either in default, in bank repossession or already in the auction block.

Compared to the nationwide rate of 25 percent from October 2007, the Illinois foreclosure rate is six percent higher.

Among Illinois counties, Cook County has the highest foreclosure rate, with 6,885 homes receiving foreclosure notices and a ratio of one unit in every 313 properties foreclosed. It accounts for more than 50 percent of the state’s total of foreclosed properties. Will County is next, with 990 homes in foreclosure and a ratio of one unit in every 226 properties foreclosed. Lake County has 815 foreclosure homes and a ratio of one unit in every 307 properties foreclosed. DuPage County has 807 foreclosed homes and a ratio of one unit in every 441 properties foreclosed.

Nationwide, foreclosures increased in October this year by five percent from September to 279,561 homes, a ratio of one unit in every 452 properties foreclosed. The monthly national rate improved due largely to legislative efforts in some states, such as California, to impose moratoriums on foreclosures.

RealtyTrac’s chief executive officer James J. Saccacio cited the efforts of several states to delay foreclosure proceedings and help decrease the number of home foreclosures, but asserted that these efforts should be accompanied by an integrated approach that features significant loan modifications.

As reported by RealtyTrac, the states with the highest foreclosure rates as of October are Nevada, Arizona and Florida. Nevada has one unit in every 74 houses foreclosed, over six times more than the nationwide ratio of one unit in every 452. Arizona has one unit in every 149 houses foreclosed and Florida has one unit in every 157 houses foreclosed.

The suspension in foreclosure properties announced by Fannie Mae and Freddie Mac last week received very positive feedback from the public.

Tiffany Edwards, a mother in Tampa, has been troubled by foreclosure until she heard about the suspension last week. At the moment, her husband is the only income earner in the family. She has just found a new job a few weeks ago, not in time for the scheduled foreclosure of their home. Thanks to the suspension, she and her husband can work out some plans so they can stay in their home for the time being.

This is the same scenario for the other sixteen thousand families in the country. They will be relieved of stress brought by foreclosure for the entire duration of the holidays.

Aside from the suspension, the two companies also offer a new loan modification program where mortgage payments would not exceed 38% (inclusive of taxes and insurance) of the pre-tax monthly income of a household.

Experts say, however, that while the measures might be helpful to some homeowners, its effects are not for the long run. The moratorium ends on January 9, 2009. After that date, families could be evicted all the same.

Also, the number of properties qualified for reprieve represents but a small part of the total number of homes to be lost to foreclosure.

The suspension covers only the loans under Fannie Mae and Freddie Mac which are only one-fifth of the total loans in the country. Furthermore, not the entire twenty percent satisfies the conditions for eligibility – the mortgaged home must be occupied by its owner, and delay in payments must be three months at the least.

Distressed homeowners might have been given a moment to breathe, but if the foreclosure crisis is to be fully addressed, long-term measures must be adapted.

Treasury Secretary Henry Paulson was questioned at a House Financial Services Committee hearing on Tuesday about why he did not use the first half of the $700 bailout money approved by Congress in September to buy back delinquent loans from banks and avert further foreclosures, which were among the original objectives of the plan when it was approved.

In the Treasury’s original proposal, it was explained to the legislators that buying back bad loans would infuse fresh capital into banks to enable them to offer new loans and eventually stimulate the housing market and the economy. Instead, Paulson spent the money to buy shares in financial institutions.

Paulson insisted that the bailout plan was not intended as a cure-all solution for the country’s economic difficulties, adding that the money would be more maximized if it is invested in financial institutions to stabilize the financial system.

Representative Barney Frank, head of the committee, rebuked Paulson, telling him that the foreclosure option was included in the bailout program approved by Congress.

In response, Paulson explained he had not totally rejected using bailout money to help homeowners avoid foreclosure, but related he had doubts about the scheme proposed by the Federal Deposit Insurance Corp.

The FDIC’s plan requires the Treasury to provide credit and loan guarantees and to bear a portion of the cost of bad loans so that mortgage lenders could offer loan restructuring options to troubled homeowners.

With the FDIC plan, about one-and-a-half million foreclosures would be prevented, according to FDIC Chairman Sheila Bair. Bair warned that about four to five million units would become foreclosure homes over the next couple of years if the federal government does not directly help the homeowners.

Federal Reserve Chairman Ben Bernanke also had reservations about the FDIC foreclosure plan, mainly because of the cost, but nevertheless, endorsed the plan because it would be run by mortgage banks rather than government units.

From December 2 to 7, hundreds of homebuyers are expected to turn up in Hudson and Marshall’s foreclosure auctions in several cities in Florida.

Florida is one of the states with a high foreclosure rate that resulted to a crisis in its housing market.

According to RealtyTrac, a firm that monitors the housing market, the number of homeowners in Florida who were in some form of foreclosure process in October 2008 reached nearly 54,324, up by 80 percent from last year.

The October rate ranked Florida the third among states with highest foreclosures, with one filing per 157 homes.

Hudson and Marshall has decided to increase its 2 percent buyer agent commission to 3 percent to entice qualified buyers to its bank-owned property auctions in Florida.

The real estate auction company will retain the listing agents of banks to effectively market foreclosed properties to homebuyers.

Listing agents’ familiarity and knowledge of foreclosures can help prospective homebuyers understand a home’s market value to help them make a successful bid.

Prospective homebuyers need not pre-register for the auction. However, they would be required to provide a $5,000 deposit for each successful bid they made.

Because houses are sold on as-is basis, it is advisable for homebuyers to inspect the properties first prior to auction. An open house will be held on November 22 and December 2 to allow homebuyers to view properties for auction.

The number of foreclosure homes in several cities in Florida where Hudson and Marshall auctions will be held are:

• 68 homes in Fort Myers
• 9 homes in Fort Pierce
• 10 homes in Pensacola
• 67 homes in Tampa
• 16 homes in Port Charlotte
• 34 homes in Jacksonville
• 20 homes in Titusville
• 3 homes in Tallahassee
• 114 homes in Orlando
• 6 homes in Gainesville; and
• 325 homes in Miami / homes in Fort Lauderdale

One of the highest rating areas experiencing foreclosures is Tennessee, with Memphis gaining the highest rate within the area. It is due to the severity of this city’s situation that HUD has allotted $12 million to Memphis.

The federal government decided to take part of a stabilization program that would save neighborhoods. With Tennessee foreclosures soaring, ten selected areas within the city with the greatest rates of foreclosures are the primary recipients of money aid which will be directed by the Memphis’ Department of Community Development.

In Raleigh, foreclosure homes have climbed to 8 percent. A resident in the area wishes their area be one of the grantees of the financial aids especially after claiming it is undesirable to be living within a neighborhood with empty homes. Situation is far worse in the areas of South Memphis and Frayser going beyond 2,000 homes, a rough 10 percent of the total homes in the area. Distressed homeowners here are having a very difficult time selling their homes.

According to a realtor, foreclosed homes, which are emptied, are often vandalized and even boarded up creating an undesirable ambience to the neighborhood. Homeowners, planning on relocating, are having a hard time marketing their homes especially with a definite depreciation of the value of their homes. This was observed to be among the many changes that came with the worsening foreclosure situation.

How will the foreclosure relief go about?

Non profit groups will be allocated the funds which will then be used to buy the home foreclosures. The homes will be prepared for sales with a few necessary restorations to make it worth a fair price for buyers with limited income while others will become a home to the homeless and needing special care. This advocacy would help not only homeowners and those in need, but also the entire neighborhood.

Aside from the $12 million funds, Tennessee Housing Development Housing Agency will add $13 million foreclosure aid for Memphis. An estimate of 145 homes is projected to be developed with the available financial resources.

Although Texas is in the verge of being swamped with foreclosures, they still have a sufficiently healthy housing market without overly declining home values. Despite the 27 percent increase from the previous year, experts have remained calm since they are still behind the extreme markets in California, Florida and Nevada.

Foreclosure Listing Service Inc. in Addison has recorded up to 9,008 foreclosures for this year already. A huge 32.7 percent coming from Travis County followed by Williamson with 30 percent and Hays and Bastrop with 9.2 and 4.5 percent, respectively.

According to a real estate expert, some evidence may be cited that could project a peak in foreclosures in the coming years. Lenders have recently been agreeable to modifying loans which may give homeowners a relief from the pressures of having to lose their homes. He says government bailouts on several financial institutions may have caused some sort of impact on the lenders on this matter. Recovery from this peak may take some time, especially since foreclosure homes are a long process causing a lag in the economy.

Other factors that may have contributed to the uphill of Texas foreclosures this year is the relatively weak economy during the first three quarters. Add the increasing price of the gasoline to that and you have people with miscellaneous financial liabilities other than their home mortgages.

However, this crisis Texas is faced with may still be considerable as compared to other states. Thanks to the strong market, even home prices do not have to drop at extremes unlike in other places. Also, there is a relatively lower subprime mortgage levels.

In other states, homeowners owe more for their properties than how much they actually sell their home for in the market reaching almost 50 percent. In Texas, only about 20 percent are faced with this situation.

Despite the hike in the number of foreclosures in Texas, still a higher number of mortgages are covered by owners on time. Also the very minimal – almost close to none; depreciation of home prices maintains the healthy housing market.

Commissioners of DeKalb County initiated a step to try to convince lawmakers to allow more time for foreclosure homes to be sold by tripling the minimum time implemented at present. By doing so, homeowners are given more time to prepare and even save themselves from losing their homes.

One of the fastest foreclosure proceedings in the nation is that of Georgia, placing sixth among the highest in the rates in October based on RealtyTrac’s website. Their notice period is as little as fifteen days giving homeowners very little time to do anything about it. However, certain amendments have been done to this law by Governor Sonny Perdue in May.

At this point, commissioners are trying to get the state legislators to extend further the time period to about 90 to 120 days. This extension would allow homeowners to strategize their financial resources or make necessary transactions for modifications that may be made to avoid losing their battle.

A commissioner who chaired a foreclosure task force in the county said many things may be done to negotiate necessary needs for the matter, however in some cases; 120 days may still be insufficient.

Another link Stoke made in the foreclosure crisis experienced in the county is the large minority population. Urban Institute and HUD conducted a study in May 7 of 500 mortgages and affirmed that lenders have been targeting blacks and Latinos for unimportant subprime loans and products of risky loans. This renders areas with higher population of blacks and Latinos of higher risks to foreclosures.

To avoid these messy situations, a recommendation was laid out by the board forming Office of Consumer Affairs for counseling, educating and recommending ways for homeowners to fully grasp the situations and possible measures they can take to keep themselves from an unlikely situation.

Federal funds for rehabilitation of abandoned homes have also been approved by the commission as part of a preliminary plan. Even the Housing and Urban Development’s Neighborhood Stabilization Program is willing to allot over $153 million in selected Georgia counties and even the city of Atlanta which are at very high risk of local abandonment.

Hence, with these measures, homeowner borrowers are prepared and even be saved from losing their homes to foreclosures.