We had read earlier of banks failing to foreclose in Dade and Broward counties because the marker was so glutted with properties for sale that there was simply no point. We heard yesterday of discussion in Cleveland of plowing largely vacant subdivisions back to farmland.
A third indicator of the degree of real estate stress: some banks are so backed up that their normal foreclosure process is falling behind. This means that the foreclosure statistics paint a more positive picture than the reality on the ground.
From Bloomberg:
Banks are so overwhelmed by the U.S. housing crisis they’ve started to look the other way when homeowners stop paying their mortgages.
The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.
Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
“We don’t have a sense of the magnitude of what’s really going on because the whole process is being delayed,” Zandi said in an interview. “Looking at the data, we see the problems, but they are probably measurably greater than we think.”
Lenders took an average of 61 days to foreclose on a property last year, up from 37 days in the year earlier, according to RealtyTrac Inc., a foreclosure database in Irvine, California. Sales of foreclosed homes rose 4.4 percent last year at the same time the supply of such homes more than doubled, according to LoanPerformance First American CoreLogic Inc., a real estate data company based in San Francisco
“Some people stay in their houses until someone comes to kick them out,” said Angel Gutierrez, owner of Dallas-based Metro Lending, which buys distressed mortgage debt. “Sometimes no one comes to kick them out.”
Banks are reluctant to foreclose on homeowners for a variety of reasons that include the cost, said Peter Zalewski, real estate broker and owner of Condo Vultures Realty LLC, a property consulting firm in Bal Harbour, Florida.
Legal fees and maintaining a vacant property while paying the mortgage, insurance and taxes can add up to as much as 15 percent of the value of the home, and it may take months for the foreclosure to work through the legal system, he said….
“Some of the banks just don’t want the houses to be empty, especially if it’s in an area where there’s a lot of theft or there are five other houses empty on the street,” said Kapsalis, who works at Added Value Realty LLC in Livonia, Michigan, another Detroit suburb. “They’ll lose toilets, plumbing, appliances, everything. Banks are getting wise and allowing people to live there longer.”…..
Five million existing homes were sold in February, down 31 percent from the peak of 7.25 million in September 2005, data compiled by the Chicago-based National Association of Realtors show. More than 4 million existing homes were on the market in February, 53 percent more than the 2.6 million average of the past nine years, the Realtors reported.
“Excess inventories pose the biggest risk to the market,” Michelle Meyer and Ethan Harris, New York-based economists at Lehman Brothers Holdings Inc., wrote in a report last month. “As long as inventories are high, home prices will fall.”….
State laws determine the length of time between the filing and an auction of the house. In most states, it’s two to six months, according to Foreclosures.com. In Maine, it can be up to a year and in New York, 19 months; in Georgia, it’s as quickly as one month, and in Nevada, it can be 35 days, according to the database.
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Not to worry — there’s gonna be a 2nd half housing recovery. Or hadn’t you heard?
Seems to me, banks ought to offer a time out from troubled mortgages. The clock should be stopped if the homeowner pays a set percentage of his monthly payments. This way, house stays occupied, ownership remains in place, families kept intact, banks get someincome from delinquent properties.
The markets are up on the bad news. Must be the fly on $#%$ phenomenon. The market is recovering from the recession – whew that is a relief. Was a 24 hours bug. Back to the punchbowl. The Fed is sooooo clever here: drive real rates to negative – and force people into overvalued stocks, which are cheap because rates are low? A closed loop win win. Declare victory game over go home. Sadly the sun comes up. Oh but markets are discounting a recovery. Ridiculous
Austere budget brings threats of prisoner releases, bank failures
TALLAHASSEE, Fla. Threats of early prisoner releases and the potential for bank failures emerged Wednesday as a series of austere spending measures advanced in the Senate as part of the budget-writing process.
Several prison guards sat in the front row as one panel unanimously agreed on a justice system budget that includes eliminating 2,200 positions from the Department of Corrections and 382 from court support staff. The cuts would amount to 8 percent for Corrections and 11 percent for the courts.
One lawmaker, meanwhile, said banks could be at risk if decimated courts are forced to delay foreclosure cases.
Lawmakers expect to spend about $5 billion less than this year as tax revenues continue to decline due to the state’s slumping economy
“It’s not beyond the realm of possibility that prosecutors will not be able to prosecute certain cases,” Perry told the committee. He said charges may be dropped if defendants cannot get speedy trials.
Perry said the courts also are being deluged with foreclosure cases. Without enough resources, that could mean greater financial losses for banks and other lenders due to long waits before they can sell distressed properties, particularly if courts shift resources to criminal cases. Sen. Alex Villalobos, R-Miami, suggested that could result in bank failures.
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20080402/APN/804020853&template=printart
Consumers are now being hit with the nightmare trifecta:
1) Rising cost of living
2) Job losses
3) Real estate price meltdown
If you think the stock market has “priced” this in already, you are dreaming in technicolor.
Yves,
If you have not heard this, well worth a listen!!
Our Confusing Economy, Explained
http://www.npr.org/templates/story/story.php?storyId=89338743
April 3, 2008 · Perplexed by the U.S. economy? You’re not alone. Law professor Michael Greenberger joins Fresh Air to explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.
Greenberger is a professor at the University of Maryland School of Law and the director of the University’s Center for Health and Homeland Security.
“Five million existing homes were sold in February, down 31 percent from the peak of 7.25 million in September 2005, data compiled by the Chicago-based National Association of Realtors show. More than 4 million existing homes were on the market in February, 53 percent more than the 2.6 million average of the past nine years, the Realtors reported.”
Really! Five million homes were sold. In FEBRUARY! My goodness. And those are just “existing” homes. I wonder how many “non-existing” homes were sold.
And they sold 7.25 million homes in Septenber of 2005! Let’s see. That’s 84 million homes per year, more or less.
Garbage. I guess they figure the “glazed over” eyes will keep this kind of nonsense from being called.
I know, I know. Those are yearly figures but that’s not what they are saying, is it?
Mel said…
Seems to me, banks ought to offer a time out from troubled mortgages. The clock should be stopped if the homeowner pays a set percentage of his monthly payments. This way, house stays occupied, ownership remains in place, families kept intact, banks get someincome from delinquent properties.
Except it’s not banks, it’s servicers acting on behalf of pools of investors who own various tranches of these pools of loans and must agree somehow.
Where the loans are actually held by the banks that made them, what you say makes sense – another reason it’ll never happen.
We are so screwed.
For bank-owned loans, this gem from the OCC (bulletin 2007-14) helps explain what’s going on:
“The agencies will continue to examine and supervise financial institutions according to existing standards. The agencies will not penalize financial institutions that pursue reasonable workout arrangements with borrowers who have encountered financial problems. Further, existing supervisory guidance and applicable accounting standards do not require institutions to immediately foreclose on the collateral underlying a loan when the borrower exhibits repayment difficulties. Institutions should identify and report credit risk, maintain an adequate allowance for loan losses, and recognize credit losses in a timely manner.”
The weasel is “adequate allowances for loan losses” as agreed with your friendly local don’t-rock-the-boat OCC or OTS examiner. Once the property is foreclosed, it’s harder to play pretend with market comparable pricing…but certainly not impossible :-)