Bank Foreclosures Information

The high demand for bank homes for sale nationwide pushed up home prices in September, according to a real estate survey conducted by Inside Mortgage Finance.

Home prices increased by 6 percent from price levels in August, reversing the one-percent August price decline from July. According to data gathered, the increase in home prices was driven by the rising demand for bank-owned homes or REO properties.

Nationwide, the average sales price for a damaged bank-owned home increased in September to $124,500, up from the August average of $106,700. The average sales price for a move-in ready bank-owned house, meanwhile, climbed up in September to $199,300, up from the August average of $178,500.

In September, damaged bank-owned houses comprised 15 percent of all house purchase deals and move-in ready properties comprised 16 percent of all home sales.

For non-distressed homes, the average price in August and in September stayed nearly constant. The average price in August was $267,900 while the average price in September was $268,200. Short sales accounted for 14 percent of all home sales in September while non-distressed homes comprised 55 percent.

Analysts said that the strong demand for lower-priced bank homes for sale reduced the time these types of homes remained on the market. During August, the average time damaged bank-owned homes stayed in listings was 9.4 weeks. The average time dropped to 7 weeks in September.

For move-in ready bank-owned homes, the average time they remained on the market in September was 5.9 weeks, a drop from 8 weeks in August. In contrast, non-distressed homes remained on the market longer, remaining in listings in September for 14.2 weeks, an increase from the average time of 13 weeks in August.

Purchases by first-time home buyers in September were again significant in September, comprising 42 percent of all home sales during the month. Before the passage of the law that offered federal tax credits to first time home buyers, their home purchases accounted for 32 percent of all home sales. The survey also found that most of the move-in ready bank-owned homes were bought by first time home buyers.

According to the researchers, the rise in home price levels and number of home buyers resulted from the confluence of favorable factors, including low mortgage rates, increased number of first time homebuyers, lower prices of bank homes for sale and the belief by real estate agents and home buyers that the housing market has started to recover.

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The issue of bank foreclosed listings in California was among issues addressed by seven mortgage-related laws signed this week by Governor Arnold Schwarzenegger.

The seven bills all provided additional protections for consumers, particularly homeowners.

One of the bills signed was AB 260, which aimed to protect mortgage borrowers from brokers or lenders who entice prospective home buyers from taking out risky home loans and buying higher-priced homes. This is to prevent a repeat of bank foreclosures that arose over the past years and months.

The bill, proposed by Assemblyman Ted Lieu, will take effect on January 1 next year. It will ban lenders from offering pay option flexible-rate mortgage loans, which allow borrowers to make very low monthly payments in the initial years and then enable lenders to increase to higher interest rates and much higher monthly payments after 3 to 5 years of low payments.

AB 260 also limits prepayment fees to a maximum of 2 percent of the loan and enables state officials to implement federal lending laws.

Last year, a similar legislation was vetoed by the governor because of pressure from the California Mortgage Association, California Association of Realtors and the California Association of Mortgage Brokers. But Assemblyman Lieu was able to campaign effectively for his cause, arguing that his bill will cut down the rising number of homes going into bank foreclosed listings.

Lieu cited foreclosure statistics from a real estate research firm which indicated that more than 92,300 California mortgage borrowers were hit with default and foreclosure notices last August.

Another bill signed was the Buyer’s Choice Act, which was proposed by Assemblywoman Cathleen Galgiani. This bill aims to enable buyers of foreclosed properties in California to choose escrow firms operating in local areas to handle their closings. Galgiani claimed that lenders have been using their affiliated escrow firms to handle closings, eliminating escrow opportunities for local escrow firms. Galgiani also said that escrow entities based in Southern California are being used for closings in Northern California, making work more difficult for brokers and real estate agents in Northern California.

The other bills signed include SB 36, a bill proposed by Senator Ron Calderon to establish licensing requirements for home loan originators, and AB 1160, a bill proposed by Assemblyman Paul Fong to require lenders to provide borrowers with mortgage documents written in the language used during verbal negotiations concerning the mortgage. This bill aims to help non-native English speakers have a thorough understanding of their mortgages and help them save their properties from bank foreclosed listings.

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Bank home foreclosures continue to gain strength at a rapid pace. The trend is partly blamed on the rising mortgage delinquencies. Industry experts said that financial companies and consumer demand will continue to suffer and pay for bad loan decisions made during the peak of the housing market.

In November 2005, home sales reached an annual pace of 8.5 million. The following year, home sales dropped by almost 3 million. The rest is history as the housing market continues to spiral downward, pulling everything with it, including the economy, home prices and home values.

And adding to the worsening problem is the rapid rise in the unemployment rate. Last month, the number of people who lost their jobs reached 9.8 percent. According to industry experts, it will take at least one year before many Americans would need more new houses to accommodate increasing demand due to the lag between mortgage delinquency, bank home foreclosures and resale.

Market data showed that one-quarter of subprime mortgages accounted for the total loan delinquency so it is expected that there will be no shortage of housing supply. Industry analysts said that the large inventory of foreclosure properties on the market will forever hinder whatever progress is made towards the recovery of the economy and the housing market.

Statistical reports noted that as many as 5.8 million loans are in danger of defaulting and going into foreclosure. The figures overwhelmed the sales of existing single family homes which reached 5.1 million annually.

Meanwhile, home prices in the country posted marginal gains from April to July. However, industry analysts are not confident that home prices will continue to increase the rest of the year and next year given the large supply of foreclosure houses on the market.

They pointed out that there is a possibility that the current 30 percent drop in home prices is still a carryover from 2006. Analysts said that banks are still facing loan losses, therefore a rise in consumer demand is not yet possible.

Also, the unemployment rate remains unabated and many homeowners have already exhausted their savings and many are turning away from their properties that are worth less than the total mortgage they owed. All these trends are pointing towards more bank home foreclosures in the future, analysts said.

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