Foreclosures: The Next 12 Months in the US

According to the National Association of Realtors, they expect the home market is expected to remain stable despite the foreclosures that are predicted to keep coming on the market throughout 2011. However, the NAR expects that as long as there is steady demand for housing. November pending home sales increased 3.5, which the NAR sees as promising and signs of a gradual housing recovery. The NAR predicts the following trends for 2011:

  • The rise in new home sales to 24%
  • Existing-home sales to rise approximately 8%
  • Housing starts to rise 21%
  • Unemployment to drop

It’s apparent that until the economy and the job market figures improve, the housing market is going to continue to see more inventory than buyers. More borrowers are expected to walk away from their homes because they have not been able to get their lenders to commit to a mortgage modification or short sale. There is frustration with the behavior of lenders the past few years by homeowners and the government. Even with government intervention with programs such as HAMP and HARP and increased pressure, lenders are still stalling and dragging their feet. It still takes three to six months or up to a year to get a response on a short sale and about 90 days on a modification, unless lenders and borrowers participate in the HAMP and HARP programs, which shorten the process substantially. However, the problem is very few are participating in these programs. Sellers are losing their short sale buyers who walk away because most buyers and investors do not want to wait that long to get a response if their offer is going to be accepted. The current way lenders are handling the situation is not working. Change must take place to eliminate the length of time it takes lenders to make decisions. The good thing is lender’s practices of robo signing and other alleged violations of truth and lending and RESPA laws have surfaced. They are currently being investigated by the 50 state attorney general offices because borrower’s complaints and foreclosure attorney’s defenses have finally been heard loud and clear by the government and the courts. Many judges have thrown out foreclosure cases based upon discovery of predatory loan practices and fraud by lenders. Forensic loan audits are increasing as foreclosure defense attorneys search for evidence that lenders committed predatory loan practices and violated mortgage lending laws at the time they gave the borrower their loan. The result may be the prevention of more foreclosures as borrowers and their foreclosure defense attorneys take to the courts to get many of these wrongful foreclosure cases thrown out and force lenders to come to the bargaining table. Lenders may finally come to the realization that they should try and keep borrowers in their homes and find a solution through a modification, refinance or short sale if the borrower wants to get out from under and sell their home. Expect to also see more strategic defaults as homeowners who have lost substantial equity and can afford their mortgage payments decide to walk away because they it no longer makes sense for them to keep a home that has lost 50% of its equity. They can walk away and buy another home at market value. Contagion has spread throughout all neighborhoods and areas where neighbors see their neighbors walk away and decide to do the same. Although lenders have vowed to come after homeowners with assets for deficiency judgments in states that allow them, there does not appear to be very incidents where lenders are actually pursing deficiency judgments. They just don’t have the money and the time with all the foreclosed homes and short sales they are facing on their books right now. It’s tougher to get a traditional loan right now. The lenders continue to tight their lending guidelines. So unless you have cash, you may have to put a much larger down payment such as 30% to 40% or wait and improve your credit score if you expect to obtain a home loan. While private money lenders are available, private loans are short term and are only good if you are purchasing the home to fix it up and resell it. If you want to stay in the home for more than five years, you need to find traditional financing. More buyers may have to put off their home buying process and rent for awhile longer until they have a larger down payment saved. Seller financing is another alternative though as well as rent to own and lease option programs if you have less than perfect credit and want to buy a home now. The good news is as the job market and economy start to improve, the housing market will stabilize and the foreclosure rate will drop. Tough decisions need to be made by lenders and loan servicers who must change their practices and focus on keeping borrowers in their homes. The government has to work harder at turning the economy around and continue the pressure on lenders to stop the foreclosure flow. The end of 2011 should see the culmination of these efforts with a slowdown of foreclosures, unemployment rates dropping and the housing market slowing starting to recover.

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