Bank Foreclosures Information

The Standard & Poor’s/Case-Shiller 20-city home price index released in 2009 may have overestimated declines in home prices because it included the prices of distressed foreclosure properties, according to Stan Humphries, data and analytics vice president for Seattle-based real estate research firm Zillow.

Standard & Poor’s home price index indicated that the value of homes in the Washington counties of Pierce, King and Snohomish fell in January by 15 percent from January 2008 and fell by 3.6 percent from the previous month. The composite home value in 20 cities declined by 19 percent from January 2008 and fell by 2.8 percent from the previous month.

Humphries contended that S&P measured home values in a particular market by examining repeat sales of same houses rather than focusing on home sales within a certain period. He observed that the S&P index considered foreclosure properties sales that have been bought back by lenders from foreclosures.

In California’s Bay Area, the median price for foreclosure properties was 47 percent of non-foreclosed properties in December 2008. Since sales of foreclosure properties accounted for 60 percent of sales in the area, Humphries argued, foreclosure properties had a significant impact on the S&P home price index.

While the S&P price index indicated a 31 percent decline in Bay Area home prices, the Zillow home price index showed a decline of only 17 percent, a difference of 14 percentage points compared to the S&P index.

Zillow further explained that the difference between S&P and Zillow’s indexes for the Seattle area was just a little over 1 percentage point because foreclosure properties accounted for only 17 percent of home sales in December 2008 while representing 73 percent of sales of non-foreclosure properties. Zillow asserted the S&P report does not show the true picture of the housing market.

David Guarino, spokesperson for S&P, rejected Humphries’ contentions, saying foreclosure properties make up part of the housing market. He argued that the homes in foreclosures now were the same homes that caused home price increases during the housing boom.

In support of the foreclosure inclusion argument, Glenn Crellin, head of Washington State University’s Washington Center for Real Estate Research, said the determination of housing market values and median home prices traditionally excluded prices of home sales influenced by factors such as state foreclosures, but foreclosure properties have become the norm in many housing markets, so the decision to include foreclosure properties has logical basis.

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The global finance company, GMAC Financial Services has decided to resume its automobile and truck lending to help subprime borrowers. It would also reduce inventory financing costs to benefit automobile dealers and boost the sales performance of General Motors Corp.

All these plans of GMAC, especially the one intended to help subprime borrowers, are hoped to prevent government foreclosures and help the struggling General Motors get back on its feet.

GMAC was previously a wholly-owned financial services unit of General Motors. It provides a range of financial programs such as real estate, automotive, insurance, commercial finance and online banking.

General Motors are currently facing restructuring and struggling to lure back customers in an effort to thwart any possibility of bankruptcy.

Sales of General Motors in the United States dove 51 percent in January and February of this year. To help its customers who have recently lost their jobs and are facing government foreclosures, General Motors launched an incentive program intended to lure customers who are concerned about job security in the current economic recession.

The incentive program covers some payments for troubled customers who became unemployed after purchasing a car. This program would be of great help also to customers who just bought a car and are facing the possibility of government foreclosures.

On its part, GMAC would make available about $5 billion credit to General Motors customers over the two-month period needed by the automobile manufacturer to prove to government officials that it could get concessions from its major union and bondholders.

GMAC plans to start again accepting loan applications from automobile and truck buyers with credit scores of less than 620. The 620 credit score is the dividing line of subprime and prime borrowers.

According to the myFICO unit of Fair Isaac Corp., the average credit score in the U.S. is 723.

Aside from loan application resumption, GMAC will also reduce borrowing costs for new and second-hand vehicle purchases.

Industry experts are hoping that GMAC’s programs will benefit individuals who owned General Motors vehicles and are on the brink of losing their properties to government foreclosures.

GMAC also relax various payments and fees imposed on automobile dealers to allow them to reduce both inventory and costs of unsold vehicles.

In December 2008, GMAC received $6 billion bailout fund, which is part of the federal effort to help the automobile industry and workers who lost their jobs and are facing government foreclosures.

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Other states can learn from Connecticut’s efforts to prevent foreclosure filings and reduce state foreclosures.

This March, Connecticut Governor M. Jodi Rell has been promoting at least two major initiatives to help prevent foreclosure proceedings. The first one is a new legislation that would mandate mediation before any foreclosure is carried out.

Governor Rell, Senator Bob Duff and Representative Ryan P. Barry, who are co-chairpersons of the state legislature’s banks committee, agreed to expand mediation services launched by the legislature in 2008. The mediation services in 2008 accomplished much, resolving about 70 percent of foreclosure cases that were mediated. The officials believe that enhancing the mediation law would prevent foreclosure filings for homeowners struggling to pay their monthly payments or homeowners who have already missed several months’ worth of payments.

The new legislation would require mediation in all mortgage foreclosure cases. Governor Rell said the entire state would benefit if all cooperate to prevent foreclosure processes. She highlighted the effects of foreclosures on property values and the stability of neighborhoods.

Meanwhile, Representative Barry affirmed that the mediation scheme introduced in 2008 to prevent foreclosure had solid results, so he and his fellow lawmakers want to extend the mediation success to more financially troubled families.

The other major initiative under Governor Rell is the state’s Mortgage Crisis Job Training Program. The law supporting this program has already been enacted in June 2008, but the governor has been going around promoting it to increase its effectiveness. The program connects job training with efforts to prevent foreclosure proceedings to happen to homeowners.

In her program campaign in Bridgeport, Governor Rell talked about opportunities to learn new skills and earn more money so that monthly payments are paid and foreclosures are avoided. The Bridgeport meeting attracted people who were looking for jobs and job training in the health sector.

Alexis Ferrer, a former chef in Stratford who has been laid off, is one of those who are being helped under the program. His mortgage is being modified, he is doing landscaping work and he is planning to study medical billing under the program.

The program, run by The WorkPlace Inc. and funded by bond funds, has already evaluated around 700 homeowners referred by mortgage lenders to the state program. According to Joe Carbone, head of The WorkPlace Inc., some will be awarded with scholarships and some others will be trained at community and state colleges. Carbone has also traveled to other states to present the job training and foreclosure prevention program.

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