Archive for 'Foreclosure Crisis'

The number of renters of REO properties is growing every day, just as foreclosures remain unabated across the country. And tenants’ advocacy groups are quick to point out that recently approved national legislation is not enough to provide protection to renters who are the latest victims of the foreclosure crisis.

More and more tenants find themselves out in the street because their landlords failed or neglected to inform them that they are living on REO properties. Housing Rights Inc. housing advocacy director Arlene Bradley said that the number of renters evicted out of their houses rose by almost 50 percent nationwide.

Before the recently passed legislation which went into effect last May, renters were left at the mercy of lenders after the properties they are living went into foreclosure. American Tenants Association executive director William Deegan explained that in Arizona, renters were forced out from their homes after given only less than a week’s notice to vacate the property.

The new legislation, which is an addendum to a housing bill that aims to prevent the foreclosure crisis, requires lenders who took over a property or new owners of REO properties purchased at auctions to allow tenants to stay at the property not less than three months or until their leases expired.

The rule only varies on those who purchased the foreclosed property with the intention of living in it. If this is the case, new owners have the right to terminate a tenant’s lease with three months’ notice.

South Brooklyn Legal Services director of litigation Ed Josephson said the rule gives a 90-day guarantee to renters unlike the previous one that do not give them any option.

However, some criticized the law as being incomplete. They pointed out that often, tenants are at the mercy of a financial system and courts that are both inefficient in dealing with their problems. They added that it is more likely than not that renters will lose their security deposits if landlords go into foreclosure.

Another problem facing renters of REO properties is maintenance. Most often distressed landlords would just let safety standards lapse and would not bother about maintenance and repair.

Data showed that most evictions happened on renters of small-scale lodgings, duplexes and triplexes.

Homebuilders have been struggling since the flood of foreclosed new homes began. After they were distressed by reports of large numbers of foreclosure filings in May, now they are further crushed by reports of the impending readjustment of adjustable mortgage loans, which will surely cause another large wave of foreclosures.

Bill Wheat, CEO of home builder D.R. Horton, said there is too much uncertainty in the home building industry because of the persistent foreclosure activity, the rising joblessness rate and other difficulties in the national economy.

Wheat expressed his expectation that the home building industry will continue to face challenges from foreclosed new homes for the rest of 2009 and the next year. He also mentioned the report that about 1 million adjustable-rate home loans will readjust in the next couple of years.

ARM readjustments are getting homeowners and others worried because the significantly higher monthly payments would certainly be beyond many borrowers’ financial capabilities, leading to more foreclosed new homes.

Richard Dugas, CEO of Pulte Homes, said the demand side of the home building market is being hit by lack of buyers with approved loans and that the supply side of the market is battered by oversupply. Aside from large inventories of unsold new homes, the supply of foreclosed new homes that are much lower priced is adding to the oversupply problem in the home construction industry.

To compete with foreclosed new homes, some builders have been offering incentives such as free upgrades and buy-downs on home loans.

Douglas Yearley, top executive at luxury home builder Toll Brothers, added that banks have made restrictions on their home lending activities, rejecting many applicants for mortgage loans and reducing the number of persons able to buy new homes.

Yearley predicted that about 50 percent of small and middle-sized home builders may have to close because of the current hardship. If the recession continues, home builders with high levels of debt will not be able to refinance and pay off their loans. Foreclosures on multifamily building projects have been increasing in recent weeks.

New-home sales have remained weak in 2009, as seen in home sales data.

This week, home builder Lennar Corp. released its report showing a quarterly loss, but it was encouraged by the optimism showed by investors who supported the stock because of improvements in its balance sheet.

These home building executives recognize the effects of foreclosed new homes on their operations, but they keep on finding ways to survive and ride out the recession.

Last month’s decline in the number of REO property in Massachusetts has prompted industry experts to suggest that more and more people have realized how costly foreclosure proceedings are and have taken steps to avoid repossession of their homes.

However, the climbing unemployment rate is causing concern among industry experts who feared that many people who lost their jobs may soon have difficulty making their mortgage payments, thus pushing the number of REO property to rise again.

In May, 582 foreclosure actions were reported, representing a decline of 58.6 percent from the 1,405 recorded during the same month last year. Last month’s figures were 24.3 percent lower from the previous month.

Statewide, foreclosure deeds recorded were down in numbers by 26.3 percent or 4,110 from 5,576 for the same period a year ago. Industry experts noted that last month’s recorded numbers of foreclosure deeds were the lowest since the April 2007 figures.

But with the growing rate of unemployment in Massachusetts, industry experts fear that those who lost their jobs will struggle with their monthly mortgage payments and push foreclosures to rise again.

Still, other industry experts attributed the decline in the number of REO property to the Massachusetts Land Court’s decision in March which invalidated two foreclosure actions because lenders involved failed to provide proof that they were the true holders of the titles to the distressed properties.

The Massachusetts Land Court’s decision had caused concerns to ripple throughout the real estate industry and prompted some lenders and banks to stall sales of repossessed homes.

Director of litigation at Harvard Law School’s WilmerHale Legal Services Center Paul Collier noted that some title companies are hesitating at insuring property titles in repossession sales because of pending litigations.

He explained that many homebuyers are having difficulty getting financing because lending institutions could not provide titles to foreclosure sales. He added that some lenders who want to hold foreclosure auctions could not attract buyers at those events.

Meanwhile, petitions for foreclosure increased significantly last month, in sharp contrast to the decline in the number of foreclosure deeds. The 2,329 filings of foreclosure petitions were almost six times higher than the 390 petitions recorded for the same period the previous year.

Harvard University’s Joint Center for Housing Studies director Nicolas Retsinas pointed out that whatever is the reason for the decline in the number of REO property, the fact remains that foreclosure is not yet over.

Foreclosed properties for sale and condos priced around $170,000 are available in Bellingham, a city on Bellingham Bay and one of the largest cities in Washington State. It is also the county seat of Whatcom County.

Over 30 unsold condo units in a housing complex called Centre Pointe along Bakerview Road are set to become foreclosed properties for sale on June 26 if the developer is not able to find financing to pay over $6 million in real estate loans provided by Bank of the Pacific.

The Centre Pointe condo complex was designed to comprise four buildings with a total of 132 condo units. All units in the first building were sold, but many units in the other buildings were not sold, as the condo market weakened after lower-priced foreclosed properties for sale flooded housing markets.

However, British Columbia-based developer Ken Komenda, a co-owner of the condo project, is still hopeful that he can find a solution to save the units from becoming foreclosed properties for sale.

Komenda is looking for a way to restructure the loan, although he is facing difficulty because lenders have been hesitant to provide new loans to back condo projects. Lenders want to see strong sales data first before starting to negotiate.

But sales of condo units in the area have been slowing down. In the three years before 2008, condominium sales had been averaging 69 units per month in Bellingham, but in the last months of 2008, condominium sales have dropped to ten units per month.

Komenda and other condo developers explained that the target clients of Centre Pointe, the empty nesters, have been tied up to their family homes because of declining home prices. Although they have been planning to sell their typically larger homes to be able to buy more manageable condos, they could not sell their houses at the prices they like.

Drew Wilkens, a top executive of Bank of the Pacific, also said that potential condo buyers are finding it harder to obtain refinancing or new loans. He added that Freddie Mac and Fannie Mae were tasked to acquire home mortgages so that banks can provide new loans, but they have not been making a lot of mortgage purchases because they have added more constraints and limits to their mortgage repurchasing programs.

Nevertheless, Komenda advised prospective home buyers to buy now and consider condos and foreclosed properties for sale in Bellingham before prices climbed up again.

Several areas in Southern California continue to experience the devastation brought about the ever-growing number of REO properties for sale. Median home prices have dropped below their 1989 levels.

According to industry experts, areas that are selling houses less than their prices 20 years ago include San Bernardino and Riverside counties. Data showed that these areas reported more mortgage defaults and REO properties for sale per capita than any other counties in Southern California.

The drastic decline in median home prices is encouraging first-time homebuyers who are purchasing properties for less than the amount their parents paid 20 years ago.

Experts said that the housing market crisis has destroyed one doctrine; that real estate properties are good investments because their values always rise over the long term. In Lancaster, a home that was priced $130,000 in 1992 was sold for $330,000 in 2005. Now, any buyer could have it for $66,500.

Meanwhile, prices of properties across Southern California have not dropped drastically, with April median price pegged at $247,000, similar to that in 2002. However, in some areas, including Inland Empire and Antelope Valley, median prices dropped precipitously that thousands of properties have lost all their appreciation values.

In San Bernardino, which recorded a high rate of REO properties for sale, the April median price of $61,000 represented an almost 84 percent decline from its 2007 peak of $370,000.

Some neighborhoods that saw an unprecedented decline in median prices are Barstow, Palmdale, Oxnard, Hemet, Victorville, Desert Hot Springs, Santa Ana and Highland. Additionally, inland communities that saw median prices slightly higher than 1989 levels and lower than that in April 1990 were Banning, Moreno Valley and Rialto.

Industry experts agree that home prices will not improve if the still growing foreclosure problem will not be contained. Statewide, California registered 92,249 foreclosure filings last month, representing a 23 percent increase from the year-ago month.

The number of bank owned properties in the state inched down by 1 percent compared with the April data and defaults also slide down by 18 percent. However, foreclosed properties scheduled for auctions inched up by 18 percent.

Six California cities occupied the top spots in the nationwide number of REO properties for sale. These are Riverside-San Bernardino, Modesto, Merced, Bakersfield and Vallejo-Fairfield.

The continued rise in number of unemployed Americans in May corresponded to the continued rise in foreclosed houses for sale in May, based on reports released by various entities this week.

The number of Americans who claimed unemployment benefits in the week ended May 30 surpassed the 6.8 million level, based on data released by the Labor Department this week. The number also corresponded to the increase in number of foreclosure notices and foreclosed houses for sale.

The figure does not include around 2.4 million Americans getting unemployment benefits through government extension programs that usually extend the 26-week period in many states by more than 50 weeks.

If the extension programs are included in the estimates, approximately 8.5 million Americans received jobless benefits in the last week of May.

An analyst said the unemployment situation continues to be a major factor in the relatively low level of consumer spending and the large numbers of bank foreclosures for sale.

The nationwide jobless rate soared in May to 9.4 percent, the highest rate reached in 25 years, after 345,000 jobs were slashed by employers. Some economists said that the unemployment rate could approach the 11 percent level in 2010. With this record rate of jobless Americans, more foreclosed houses for sale are expected.

Nevertheless, there was one positive data related to unemployment last week. The number of new unemployment claims dropped to an adjusted figure of 601,000, the lowest number since January and lower than analysts’ expectations.

The large rise in the number of jobless claims and the decline in new unemployment claims indicate that many companies have not been hiring.

Additionally, the decline in home values, stock prices and job numbers will continue to push down consumer spending levels. This fact makes analysts conclude that economic recovery would be slow because consumer spending, which powers the major part of the economy, is declining.

Economists and other analysts expect job losses to increase foreclosures, as lack of income, and not subprime mortgages, has become the main reason for failure to make monthly loan payments. Foreclosures are expected to continue their upward direction until 2010.

Nationwide in May, a total of 321,480 housing units received foreclosure notices. Included in the total are 65,017 units which are already counted as foreclosed houses for sale.

The federal and local government are intensifying their housing recovery efforts and launching new ones to contain the flood of mortgage delinquencies and bank REO properties in Seattle, Washington.

The U.S. Department of Housing and Urban Development (HUD) hosted a party in Seattle during the Recovery Act in Action Week. Some of the party highlights included HUD Secretary Shaun Donovan’s broadcast message, networking, webinars and technical assistance for recovery programs.

Currently, the HUD is providing a total of $3.47 billion in competitive grants for Native American and public housing, green retrofitting for federally-assisted houses and neighborhood stabilization projects.

Last February, the HUD allocated about $10.1 billion Recovery Act funds, with $168.6 million received by Washington.

HUD’s Office of Field Policy and Management deputy director Dave Ziaya said that Seattle could apply for the competitive grants which are set up not just for neighborhood stabilization and bank REO properties prevention programs.

HUD deputy regional director Martha Dits said that there are many agencies in Seattle that could seek funding, adding that there is a lot of interest and enthusiasm on the recovery funds.

Brookings Institute’s Metropolitan Policy Program Vice President Bruce Katz noted that the recovery grants are motivating counties and cities to work together and with private partners. He added that parties involved have recognized the links between energy, housing and transit.

Meanwhile, the government-controlled mortgage company Federal Home Loan Mortgage Corp. or Freddie Mac has announced that it would ease loan refinancing rules to help more homeowners avoid bank REO properties.

Freddie Mac will allow borrowers of loans guaranteed by the agency or who are current on their mortgages to refinance their troubled loans through any affiliated lenders. Currently, troubled loans are only refinanced through lenders who gave out the mortgages.

The program is part of the Home Affordable Refinance plan, under the Making Home Affordable program of the Obama Administration.

The refinancing program allows renewed financing at low interest rates for as many as 5 million borrowers who have good mortgage payment histories on loans guaranteed by Freddie Mac or its sister company, the Federal National Mortgage Association.

Last April, filings of foreclosures were made on 52.8 percent homeowners daily, an increase from the 24.5 percent for the same period last year. In Snohomish and King counties, 0.7 percent of properties were in danger of becoming bank REO properties and 2.3 percent mortgages were delinquent for at least 90 days.

Continued lender actions to foreclose houses pushed down home prices in March in the Washington, D.C. capital region, based on the Standard & Poor’s/Case-Shiller Home Price Index published on Tuesday. Home price levels in the region declined by 8.4 percent compared to price levels in March 2008.

The home price index, which tracks home prices in 20 major U.S. cities, showed that the housing sector nationwide remains weak as actions to foreclose houses pushed home prices further down.

Housing prices in the capital area did not decline as steeply as in other metropolitan areas, but the area’s decline showed that home price stabilization is still not within reach.

Nationwide, home prices declined by 19.1 percent in the first quarter this year compared to last year’s first quarter. This represented the biggest decline in the index’s 21-year history. Home prices dropped to 2002 levels and fell by 32.2 percent compared to their highest levels in 2006.

Based on the S&P report, nine metro areas posted record-breaking home price decreases in March. Prices declined by over 30 percent in Las Vegas, Phoenix and San Francisco, making them the three worst performing cities in terms of housing sector activity.

The best performing cities were Denver and Dallas, where home prices dropped by only about 5 percent.

Analysts expect home prices to decline further into lower levels across the nation as lenders continue to foreclose houses and as buyers take time in choosing from large inventories of foreclosure homes in the market.

At least three factors are pushing down home prices: lenders’ decision to foreclose houses as borrowers extend the number of months they are in default, continued increase in job cuts and the end of foreclosure moratoriums.

Marc Chandler, chief of currency strategy for Brown Brothers Harriman, said that around $119 billion mortgage loans are already overdue by one month. He estimated that mortgage lenders will foreclose houses at a pace of more than 2 million homes this year, an increase from the 3 million foreclosed units during the two-year period of 2007 to 2008.

Chandler explained that the double trouble of foreclosures and unemployment are too heavy for home price levels to bear.

Another challenge facing the housing sector is the reality that government and nonprofit programs to combat lenders’ decisions to foreclose houses have not made a significant impact. According to a Fitch Ratings report released on Tuesday, about 75 percent of refinanced or modified loans are likely to get delinquent again after just a year due to the still worsening unemployment situation.

Regions that were initially protected from the effects of the nationwide housing collapse because of their high-tech industries are now suffering the economic difficulties brought about by loads of foreclosure list inventories.

As shown in the Associated Press Economic Stress Index for over 3,000 counties in early 2008, foreclosure list inventories, bankruptcies and jobless rates were not apparent in high-technology regions such as the Silicon Valley in California and the Research Triangle in North Carolina.

But in the last months of 2008, foreclosure list inventories in high-technology regions began to drastically rise, leading to significant bankruptcies and jobless rates.

In the last 12 months, Santa Clara County, where the Silicon Valley is located, experienced a nearly 60 percent increase in bankruptcies, and the numbers are still growing.

In North Carolina, the jobless rate has risen to the 10.7 percent record level, with nearly 200,000 jobs cut down across the state. Around 20 percent of these occurred in the high-tech Research Triangle area, which covers Raleigh, Durham and Chapel Hill.

In Boston, foreclosure list inventories in high-tech communities around the city are rising to their record high levels.

Ohio State University digital economy professor Ed Malecki said the high tech sector is experiencing financing difficulties because angel investors and venture capitalists have been holding on to what is left of their personal wealth as the economy declines.

Digital economy analysts have also observed that high technology regions, which survived most of 2008 with negligible financial problems, are now suffering from the same or higher level of jobless rates, foreclosure list rates and bankruptcy rates faced by regions with no or only few high tech companies.

Russell Hancock, president of Silicon Valley Network, said he thought high tech industries would never be touched by the loaded foreclosure list problem. But he said he clearly was mistaken as every major high tech company previously untouchable, such as Microsoft, Hewlett Packard, Yahoo, Google, Sun and Intel are now laying off workers.

The Hope for Homeowners loan refinancing program which was launched by the Bush administration in October last year has been expanded by President Obama on Wednesday to save more houses from becoming foreclosed homes.

President Obama signed into law a housing bill that included the expansion of the Hope for Homeowners program, the protection of lenders from investor lawsuits, the protection of renters of foreclosed homes and the expansion of assistance programs for the homeless.

When the Hope for Homeowners scheme was launched last year, federal officials expected to help about 400,000 homeowners save their houses from becoming foreclosed homes, but after a period of seven months, only 51 homeowners have been helped by the program nationwide.

The Obama administration saw the problems in the Hope program so it enhanced the program by expanding eligibility to the program, lowering participation fees, simplifying documentation requirements and providing cash incentives to lenders and servicers who help borrowers save their houses from becoming foreclosed homes.

The housing bill also added another provision to the Making Home Affordable program launched by President Obama in February. It issued legal protection to servicers or lenders who modify loans under the Affordable program or refinance under the Hope for Homeowners program from lawsuits filed by investors affected by loan modifications.

Since the launching of the Obama program, it had already modified 70,000 loans. Although Obama’s program provides incentives both to lenders and borrowers, housing advocates argue that both the Affordable and Hope programs involve lenders on a voluntary basis.

Obama had planned to make loan modification mandatory through a bankruptcy reform bill, but it was rejected by senators.

Another provision in the housing bill is the allocation of $130 million in funds for nationwide foreclosure prevention programs, such as foreclosure prevention counseling, consumer education, hiring of more field workers and information drives against foreclosure fraudulent activities.

Homelessness was also addressed in the bill. A funding of $2.2 billion was allocated to finance programs to help homeless Americans and mitigate the impact of homelessness on neighborhoods.

The bill also requires mortgage lenders to inform borrowers who finally owns mortgages if their mortgage loans are sold to investors or other third parties.

Lastly, the bill provides protection to tenants who are caught in foreclosures. Banks who own foreclosed homes must give at least three months to renters to find another rental and must notify them properly.