According to Florida based Lending Processing Services, the time it takes an average delinquent loan to be processed through the foreclosure process is now 631 days. Bank repossessions rose in October 2011 in many judicial foreclosure states. Judicial foreclosures are foreclosures that need court approval. For instances, foreclosures rose 48% in New Jersey and 73% in Indiana month-to-month according to data released by RealtyTrac. The inventory of foreclosure homes is at a record high representing 4.29% of all loans according to Lending Processing Services. Non-judicial state foreclosure states have inventory half that of foreclosure states and four to five times more sales. The reason is a non-judicial state foreclosure does not need court approval so the process is quicker.
The government has tried to put pressure on lenders and loan servicers to help borrowers stay in their homes the last few years with their modification, refinance and short sale/deed in lieu programs. The programs are voluntary and the participants get incentives from the government for successfully completing a modification, short sale, refinance or deed in lieu of foreclosure. A short sale is when the lender agrees to allow the homeowner to sell their home for less money because property values have declined, and they can no longer afford their mortgage payment because of a financial hardship. The lender agrees to write off the loan balance and the homeowner walks away. The deed in lieu is when the homeowner signs over the deed to the house back to the bank and walks away owing nothing. A modification is occurs when the lender modifies the existing mortgage to lower the interest rate, extend the loan term and/or reduce the principal so that the mortgage payment is more affordable for the borrower. Refinancing occurs when the first mortgage is paid off by the new mortgage, and the borrower receives a lower interest rate on the new mortgage to make their monthly payments more affordable.
However, many borrowers who participate in the government’s modification program end up defaulting again in six months so while modifications help people who have a steady income, they don’t do much good for people who have lost their jobs and have no more unemployment benefits. It’s just prolonging the inevitable. More jobs would certainly help slow down and prevent the foreclosure crisis from continuing.
Tearing Down and Donating Foreclosure Homes
Because there are so many foreclosure homes, and they bring down property values in the neighborhoods they are located, many mortgage holders have decided to give up their worst foreclosure properties and have them torn down in cities such as Cleveland, Detroit and Chicago. Bank of America is willing to pay up to $7,500 to local companies to tear some of their foreclosure homes down. Citi Group began donating foreclosure homes to government housing agencies and nonprofits in 2008 and so did Fannie Mae in 2009. If the bank donates a home, they no longer have to pay the taxes and upkeep on it. They may also get to write off their donations.
Some communities have decided to purchase abandoned and vacant foreclosure properties and tear them down to avoid crime and rodents from investing the home and bringing property values down further. It also creates jobs for the area.
With record numbers of foreclosure and high inventory, the recovery of the housing market is predicted to be slow and continue for some time before home prices rebound. Statistics show that new foreclosures are still out numbering foreclosure sales and ineffective loan modifications are creating more foreclosures. Consumer confidence in buying a house is low as well according to Standard and Poor’s.
However, if you are in the market for a foreclosure property, you can certainly find one at a great price. Also, if you are willing to do some of the work yourself, you will save even more money. It’s not all gloom and doom. In fact, a large number of first time home buyers and investors have been scooping up foreclosure properties because the prices are so affordable. With interest rates so low, it’s no wonder that smart buyers are taking advantage of the marketplace conditions.